EVALUATION REPORT Minnesota State Lottery

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Report # 04-01OFFICE OF THE LEGISLATIVE AUDITORSTATE OF MINNESOTAEVALUATION REPORT Minnesota State LotteryPowerballOL AFEBRUARY 2004PROGRAM EVALUATION DIVISIONCentennial Building - Suite 140658 Cedar Street - St. Paul, MN 55155Telephone: 651-296-4708 Fax: 651-296-4712E-mail: auditor@state.mn.us Web Site: http://www.auditor.leg.state.mn.us

Program Evaluation DivisionThe Minnesota Office of the Legislative Auditorwas established in 1973, replacing the century-oldPublic Examiner’s Office. Its role is to audit andevaluate public programs and ensure accountabilityfor the expenditure of public funds. In 1975, theLegislature created the Program EvaluationDivision within the auditor’s office. The division’smission, as set forth in law, is to determine thedegree to which activities and programs enteredinto or funded by the state are accomplishing theirgoals and objectives and utilizing resourcesefficiently.Topics for evaluation are approved by theLegislative Audit Commission (LAC), a16-member joint, bipartisan commission. Thedivision’s reports, however, are solely theresponsibility of the Office of the LegislativeAuditor. Findings, conclusions, andrecommendations do not necessarily reflect theviews of the LAC or any of its members.A list of recent evaluations is on the last page ofthis report. A more complete list is available atOLA's website (www.auditor.leg.state.mn.us), asare copies of evaluation reports.The Office of the Legislative Auditor also includesa Financial Audit Division, which annuallyconducts a statewide audit of the 25 largestagencies, an audit of federal funds, andapproximately 40 financial and compliance auditsof individual state agencies. The division alsoinvestigates allegations of improper actions bystate employees.Professional StaffSupport StaffJames Nobles, Legislative AuditorDenice MaloneBarbara WingJoel AlterValerie BombachDavid CheinJody HauerAdrienne HowardDaniel JacobsonDeborah JunodCarrie MeyerhoffJohn PattersonJudith RandallJan SandbergJo VosJohn YunkerThis document can be made available in alternativeformats, such as large print, Braille, or audio tape,by calling 651-296-8976 Voice, or the MinnesotaRelay Service at 651-297-5353 or 1-800-627-3529.e-mail: auditor@state.mn.usReports of the Office of the Legislative Auditorare available at our Web Site:http://www.auditor.leg.state.mn.usPrinted on Recycled Paper.Photo Credits:The Powerball photograph on the Minnesota State Lottery report cover and those on pages 10, 63, 72, 87, 90, 107, and 136 werefurnished by the Minnesota State Lottery; the picture on page 15 was provided by the Board of Soil and Water Resources; and thoseon pages 17, 64, 71, 75, 103, 129, 131, 134, and 135 were taken by Legislative Audit staff.

OLAOFFICE OF THE LEGISLATIVE AUDITORState of Minnesota James Nobles, Legislative AuditorFebruary 19, 2004MembersLegislative Audit CommissionIn June 2003, the Legislative Audit Commission directed the Office of the Legislative Auditor toexamine the finances and business practices of the Minnesota State Lottery. Because ofconcerns raised during the 2003 legislative session, the commission wanted an in-depth study ofthe Lottery’s operating expenses and other costs.We found that the Minnesota State Lottery’s operating expenses are high compared with those ofsimilar lotteries. As a result, the Lottery has a lower profit margin and provides less money forstate programs. The report raises significant concerns about the Lottery’s spending onpromotions, rent, personnel, and many other activities. We are particularly concerned about theLottery’s support for a bass fishing tour, an environmental exhibit vehicle, and the productionand distribution of a television program. We also have serious misgivings about the Lottery’sbusiness relationship with a firm that has done a considerable amount of work for the Lottery.We recommend that the Lottery should be required to submit its operating and capital budgets tothe Governor and the Legislature for review. The Legislature should establish amounts availablefor those budgets in law every two years. To improve the Lottery’s accountability to electedofficials, the Lottery director should serve at the pleasure of the Governor like other state agencyheads.This report was researched and written by John Yunker (project manager) and David Chein.Patrick Phillips, a financial auditor, provided valuable assistance.Sincerely,/s/ James NoblesJames NoblesLegislative AuditorRoom 140, 658 Cedar Street, St. Paul, Minnesota 55155-1603 Tel: 651/296-4708 Fax: 651/296-4712E-mail: auditor@state.mn.us TDD Relay: 651/297-5353 Website: www.auditor.leg.state.mn.us

Table of nizationFinancesOversight and AccountabilityOther Legal Gambling34716162.COMPARISONSSelection of Comparison StatesMethodsFindingsDiscussionRecent Spending Changes2122232430343.ADVERTISING AND PROMOTIONSAdvertisingPromotions3738434.OTHER EXPENSESPrizesTicket CostsPersonnel ExpensesOffice and Warehouse RentTravel ExpensesDepreciation ExpensesMiscellaneous ExpensesOther Issues818287961021061121131205.LEGISLATIVE ntrolsUnclaimed Prizes127128128132134136APPENDIX A139AGENCY RESPONSE145RECENT PROGRAM EVALUATIONS147

List of Tables and FiguresTablesPage1.11.2Lottery Staff Reductions, October 2003Lottery Operating Expenses, FY 20036112.12.2Features of Minnesota and Comparison State Lotteries, FY 2002Lottery Expenses as a Percentage of Ticket Sales for Minnesotaand Comparison States, FY 2002Percentage Difference in Operating Expenses Between Minnesotaand Comparison States, FY 2002Per Capita Lottery Operating Revenues and Expenses for Minnesotaand Comparison States, FY 2002Effect of Sales Mix and Cost of Living on Minnesota LotteryExpenses, FY 2002Lottery Expenses as a Percentage of Ticket Sales for Minnesota andComparison States, FY 2003Lottery Revenues, Expenses, and Operating Profits as a Percentageof Sales, FY 2002, 2003, and Budgeted 200423Minnesota Lottery Promotions Expenses (in 1,000s) FY 2002-04Minnesota State Lottery Sponsorships, 2003Minnesota Lottery Expenses for the Environmental JournalTelevision Program (in 1,000s), FY 2002-04Use of the Environmental Experience Vehicle, CY 2002-03Use of Portable Kiosks, CY 2002-03Growth in Sales for Sales Representatives Who EmphasizedRetail Promotions, 2001Information on Selected Lottery Vendors4447Prizes as a Percentage of Sales, FY 2002Profits of Scratch Games with Prize Levels Supplemented byUnclaimed Prize Money, 2001-03FTE Staff at Minnesota and Comparison State Lotteries, FY 2002Employee Compensation at Minnesota and Comparison StateLotteries, FY 2002Office and Warehouse Space Used by Minnesota and ComparisonState Lotteries, FY 2002Office Space Used by Minnesota Agencies With 50 to 1,000Employees, FY 2003Miscellaneous Lottery Expenses in 1,000s, FY 2002-04Lottery Estimates of Additional State Revenue from New Gamesor 00103104115125

viiiMINNESOTA STATE LOTTERYFigures1.11.2Page1.31.41.51.6Minnesota State Lottery Organization Chart, November 2003Minnesota State Lottery Sales of Scratch and Online Games,FY 1991-2003Distribution of Lottery Revenues, FY 2003Lottery Operating Expenses as a Percentage of Sales, FY 1991-2003Lottery Proceeds Transferred to the State, FY 1991-2003Percentage of Lottery Sales Transferred to the State, FY 1991-2003791213142.12.22.32.4Percentage of Lottery Sales Paid as Prizes, FY 2002Lottery Operating Expenses as a Percentage of Sales, FY 2002Total Lottery Expenses as a Percentage of Sales, FY 2002Operating Profit as a Percentage of Sales, FY 2002262728293.13.2Advertising Expenses as a Percentage of Sales, FY 2002Promotions Expenses as a Percentage of Sales, FY 200240454.14.2Ticket Expenses as a Percentage of Sales, FY 2002Scratch Ticket Expenses as a Percentage of Scratch Game Sales,FY 2002Online Ticket Expenses as a Percentage of Online Game Sales,FY 2002Employee Salaries and Benefits as a Percentage of Sales, FY 2002Depreciation Expense as a Percentage of Sales, FY 2002884.34.44.55899396112

SummaryMajor Findings: In 2002, the Minnesota StateThe MinnesotaState Lotteryshould be moreaccountable tothe Governorand theLegislature.Lottery spent close to two-thirdsmore of its sales revenue onoperating expenses thancomparable state lotteries. As aresult, less funding was availablefor environmental and otherprograms funded by lottery profits(pp. 26-29). The Minnesota Lottery has moreautonomy and is less accountableto elected officials than otherMinnesota state agencies andlotteries in most other states(pp. 33-34). The Lottery spends more than 400,000 annually to support theMinnesota Pro/Am Bass Tour anddevotes considerable time to assistin the tour’s operation, despite thetour’s limited value for lotterysales (pp. 49-55). The Lottery has a traveling exhibittrailer—called the EnvironmentalExperience vehicle—that iscosting the Lottery about 1.4million over five years but isinfrequently used and is ofquestionable value (pp. 62-72). The Lottery spends 1.2 millionannually for the production anddistribution of a televisionprogram that has questionablebenefits for the Lottery (p. 55-60). The Lottery has nevercompetitively bid any of the workdone by Media Rare—which isalso the owner of the basstour—and has overpaid the firmin a number of instances (pp. 58,65-66, and 77-80).Key Recommendations: Like state agency budgets, theLottery’s budget for operatingexpenses should be reviewed everytwo years by the Department ofFinance and approved by theLegislature (p. 129). The Legislature should allow theGovernor more discretion inremoving and appointing thedirector of the Lottery (p. 131). The Legislature and theDepartment of Finance shouldscrutinize the Lottery’s spendingin detail and consider additionalreductions in the Lottery’s fiscalyear 2005 budget (p. 132). The Lottery should reexamine itsrelationship with Media Rare,reassess the value of the servicesprovided by that firm, andterminate its sponsorship of theMinnesota Pro/Am Bass Tour(pp. 55, 60, 62, 72, and 79-80).

xMINNESOTA STATE LOTTERYReport SummarySince its inception in 1990, theMinnesota State Lottery has provided 1.1 billion for state-financedprograms. During the 2003 legislativesession, however, the Lottery wascriticized for spending 50 million onoperating expenses during fiscal year2002. Although previous legislatureshad never established a budget for theLottery, the 2003 Legislature cappedthe Lottery’s annual operatingexpenses at 43.5 million beginningwith fiscal year 2004.The Lottery hashigher operatingexpenses andlower profitsthan similarlotteries.The Legislative Audit Commissionalso wanted an in-depth review of theLottery’s spending. Our evaluationexamined the Lottery’s operatingexpenses in detail and foundsignificant problems with the Lottery’sspending and procurement practices.This report recommends that theLegislature and the Governor considerfurther reductions in the Lottery’sbudget. We also recommend statutorychanges to make the Lottery and itsdirector more accountable to thestate’s elected officials.The Minnesota Lottery HasSignificantly Higher OperatingExpenses than ComparableLotteriesIn 2002, the Minnesota State Lotteryspent more than 13 percent of its salesrevenues on operating expenses, whilesimilar state lotteries spent an averageof 8 percent. The Lottery had about50 percent more staff per 1 millionin sales than other lotteries, as wellas considerably more office andwarehouse space. The MinnesotaLottery spent almost one-fourth morethan comparable lotteries onadvertising and more than six times asmuch as other lotteries on promotionalactivities. The Lottery’s expenses forticket production and distribution were40 percent higher than the average forother lotteries. The Lottery also hadLottery Operating Expenses as a Percentage of Sales, FY gnificantly higher depreciation andother expenses. As a result, theMinnesota State Lottery returned only21 percent of its sales revenue to thestate for environmental and otherpublic programs, compared with anaverage of 27 percent in states withsimilar lotteries.During the 2003 legislative session,Lottery officials attributed much of thedifference in spending and profits todifferences in the cost of living and thehigher share of sales for scratch gamesin Minnesota. But we estimate that, in2002, only a little more than one-fourthof the difference in profits was due tothese factors. Minnesota has morecharitable gambling than other states,but the additional competition does notappear to explain the Lottery’s higherspending and lower profit margin.Recent budget cuts have reduced theLottery’s staff size and budget, but theLottery’s 2004 operating expenses as apercentage of sales are expected tosignificantly exceed the 2002 averagefor other lotteries.The Lottery Is Funding aNumber of Promotional ActivitiesThat Have Limited ValueThe Minnesota Lottery hassignificantly higher promotionalspending than other lotteries, but some

SUMMARYThe Lotteryhas someinappropriateprocurementpractices andbusinessrelationships.xiof this spending is of questionablevalue. The Lottery spends about 400,000 annually to support theMinnesota Pro/Am Bass Tour. Inaddition, unlike other sponsoredevents, the Lottery devotes significantstaff resources to planning andoperating the tour and has paid for upto eight staff and a driver to attend tourevents. While the Lottery eliminatedall but a few of its sponsorships due torecent budget cuts, the Lottery plannedto continue its sponsorship of the basstour. In our view, this sponsorship hassignificantly less promotional valuethan some of the eliminatedsponsorships.The Lottery has leased and improved atractor/trailer to serve as a travelingexhibit highlighting the use of lotteryprofits for environmental projects.Over five years, the Lottery isexpected to spend about 1.4 millionon its Environmental Experiencevehicle. This vehicle, as well as theportable kiosks purchased by theLottery, has been used infrequently.In addition, the Lottery mismanagedthe acquisition and improvement ofthe vehicle. Among other problems,the Lottery committed to making leasepayments that were about equivalentto the cost of the vehicle, yet the leaseagreement did not give the Lottery anyownership rights to the vehicle or itsextensive permanent improvements atthe end of the five-year lease period.The Lottery also spends about 1.2million annually for the productionand distribution of a weekly televisionprogram called the EnvironmentalJournal. In addition, the Lotteryspends about 0.4 million per year forone-minute radio spots called theEnvironmental Journal and the PlayerSpotlight. Although the televisionprogram is seen on some commercialstations, it is primarily aired on publicaccess cable stations. The value ofthis program, as well as the radiospots, has not been estimated by theLottery or any independent source.The producer of the show hasestimated their value, but thoseestimates are flawed and outdated.All of these activities involve acompany called Media Rare withwhich the Lottery has had along-standing relationship. MediaRare produces the television programand radio spots, leases theEnvironmental Experience vehicle tothe Lottery, and is the owner of thebass tour. The Lottery also paid MediaRare to improve the tractor/trailer thatbecame the Environmental Experiencevehicle. The Lottery has nevercompetitively bid the work that MediaRare does for the Lottery, and has aloose contractual arrangement withMedia Rare. The Lottery has not hadadequate contracts for Media Rare’sservices and has paid the companythrough the Lottery’s advertising firm.In addition, the Lottery has overpaidMedia Rare for its work on theEnvironmental Experience vehicle andthe Environmental Journal televisionprogram.The Lottery Has Not AdequatelyEvaluated the Impact of ItsAdvertising and PromotionalActivitiesAdvertising is generally expected to beeffective in stimulating lottery sales.But sales of scratch tickets fell 31percent in inflation-adjusted dollarsbetween 2000 and 2003. The Lotteryhas not attempted to measure theeffectiveness of its advertising since1997 and needs to reassess itsadvertising strategy given the declinein scratch ticket sales.The Lottery measures the benefits andcosts of sponsorships and hasattempted to evaluate the impact ofretail promotions on sales. However,

xiiMINNESOTA STATE LOTTERYLottery staff overstate the benefits ofsponsorships and understate the costs.Lottery sales managers havemisinterpreted the results of theevaluation of retail promotions.Other Lottery Spending Needs toBe ScrutinizedThere needs to be further scrutiny ofother Lottery expenses besidespromotions and advertising expenses.For example, the Lottery’s ticketexpenses are high relative to otherstates. While the contract for onlineservices is set for another four years,the contract for scratch tickets expiresin a year. In the past, the Lottery hasnot placed enough emphasis on thecost of tickets when selecting a vendorand has paid for additional ticketfeatures that do not seem to haveresulted in increased sales.Even after recent budget cuts, theLottery has about one-fourth morestaff per 1 million of sales thancomparable lotteries had in 2002. TheLottery also has more assistant agencyheads, managers, and supervisors peremployee than most other stateagencies in Minnesota. With thereduction in staff, the Lottery now hasabout 54 percent more office space peremployee than comparable lotterieshad in 2002.The Legislatureshould transferthe Lottery'sremainingunclaimed prizemoney to a statefund.The Lottery is also continuing tosupplement prize levels of selectedscratch games using accumulatedunclaimed prize money. Although the2003 Legislature required the Lotteryto return any future unclaimed prizemoney to the state, the Lottery was leftwith 2.5 million that was unclaimedprior to fiscal year 2004. TheLegislature should take the remainingmoney away from the Lottery, sincelottery games with supplemented prizelevels have had lower profits thanother games.Some Lottery Expenses HaveBeen Unnecessary orInappropriateUntil recently, the Lottery permitted11 Lottery employees to use Lotteryvehicles to commute to and from work.Some commuted more than 20,000miles per year. This practice violatedstate law and caused unnecessary andextensive expenses. The Lotterypurchased coffee for its employees,rented plants for its office, and used adepartment head expense accountinappropriately. The Lottery alsoincurs business meeting expenseswithout legal authority to do so. Onoccasion, the Lottery has permittedsome managers and staff to use ticketsand merchandise for purposes weconsider unnecessary.Travel expense advances to the formerdirector of the Lottery violated statepolicy and were not promptly settled.The former director also receivedreimbursement for overnight lodgingand meals at a fishing tournament inthe Twin Cities area. Lotteryaccounting staff do not consistentlycheck mileage reimbursement claimsto see if a lottery vehicle could be usedinstead of an employee’s personalvehicle. Finally, the Lottery spentabout 4,200 to send the formerdirector and three employees to afishing tournament, although theLottery received minimal promotionalbenefits from the tournament. Theformer director and another employeealso fished for free in the tournamentand thus received a gift that may beprohibited by state law.

IntroductionSince its inception in 1990, the Minnesota State Lottery has provided 1.1 billion for state-financed programs, including about 312 million forthe Environment and Natural Resources Trust Fund. But, during the 2003legislative session, an environmental group criticized the Lottery’s financialrecord. The Minnesota Center for Environmental Advocacy (MCEA) said theMinnesota State Lottery had high administrative expenses and a low return to thestate compared with other state lotteries. The Center also claimed thatMinnesota’s Lottery had a high number of employees and spent more than otherlotteries on advertising and promotions.Although Minnesota Lottery officials disputed the MCEA’s claims, the 2003Legislature placed a cap on the lottery’s annual operating expenses for FY 2004and subsequent years. The cap limits the Lottery’s operating expenses to no morethan 43.5 million, or about 5 percent less than the Lottery planned to spend inFY 2004. In addition, the Legislative Audit Commission directed the Office ofthe Legislative Auditor to conduct an in-depth study of the Lottery’s financialpractices. In this report, we address the following questions: How have sales and expenses changed over the Lottery’s 13-yearhistory? How do the expenses and profits of the Minnesota State Lotterycompare with those of similar state lotteries? Is the Lottery operated efficiently? Does the Lottery make prudentfinancial decisions? How effective are the Lottery’s advertising and promotion efforts? Is there sufficient oversight of the Lottery’s finances? Are the Lotteryand its top officials sufficiently accountable to the people of Minnesotaand their elected officials?To conduct the evaluation, we examined the Lottery’s financial records, theLottery’s process for awarding major procurement contracts, the job descriptionsof Lottery staff, and mileage logs for Lottery vehicles. We also interviewed theLottery’s managers and staff, inspected the Lottery’s office and warehouse space,and visited three of the Lottery’s six regional offices. In addition, we viewed theLottery’s recent television advertisements and recent airings of its EnvironmentalJournal television program and listened to recent radio advertisements and radiobroadcasts of the Environmental Journal. To provide a comparative perspective,we talked with officials from lotteries in other states and collected data from themon lottery finances in their states. We also used financial, staffing, and other dataon state lotteries from national and international sources. Data on other

2MINNESOTA STATE LOTTERYMinnesota state agencies were used for some staffing, salary, and rentalcomparisons.Chapter 1 of this report describes the Lottery’s history and finances. In addition,we discuss other forms of legal gambling in Minnesota. Chapter 2 presentsinformation on how the Minnesota State Lottery compares with other statelotteries across the country. We provide a detailed comparison of the MinnesotaLottery’s sales and expenses with eight state lotteries that are similar to ours insize and products. In Chapter 3, we examine the Minnesota State Lottery’sadvertising and promotional expenses in detail and highlight areas of concern.Chapter 4 discusses a wide range of Lottery expenses including prizes, tickets,personnel, rent, vehicles, and other expenses. Chapters 3 and 4 presentrecommendations for action by the Lottery, and Chapter 5 offersrecommendations to the Legislature and Governor. An appendix provides moredetailed information on the sales revenues, expenses, and operating profits of allstate lotteries operating in the United States.

1BackgroundSUMMARYSince the Lottery’s inception, Lottery ticket sales and proceeds to thestate have declined in inflation-adjusted dollars. Lottery ticket salesincreased slightly in the early 1990s but fell by 17 percent ininflation-adjusted dollars between 1997 and 2003. Lottery operatingexpenses kept pace with inflation during this period. As a result,Lottery proceeds transferred to the state declined 22 percent ininflation-adjusted dollars between 1997 and 2003. The percentage ofsales transferred to the state fell from an average of 24 percent from1991 through 1997 to 22 percent from 1998 through 2003.The Lottery is not required to have its budget approved by theGovernor or the Legislature. In addition, the lottery is not subject toall of the accounting and contracting requirements that apply to moststate agencies, although statutes require lottery procurement contractsto be determined through an open bidding process. In response toconcerns that the Lottery’s administrative expenses were too high, the2003 Legislature placed a limit on Lottery spending for the 2004-2005biennium. This amounted to about a 7 percent reduction from 2003spending. In response, the Lottery laid off 34 permanent employeesand 10 student workers and reduced its planned spending onpromotions, advertising, and other Lottery operations.Minnesota beganselling lotterytickets in 1990.In November 1988, Minnesota voters approved a constitutional amendmentto authorize a lottery.1 The 1989 Legislature established the MinnesotaState Lottery, which sold its first tickets in 1990.2 Minnesota is currently one of40 states that operate lotteries. Like most of those states, the Minnesota StateLottery offers a combination of “instant” or “scratch” games, where purchaserscan scratch off the coating on a ticket to reveal whether or not they win a prize,and “online” games, where tickets contain several numbers and a drawing is heldat a scheduled time to determine the winning numbers. In fiscal year 2003,Minnesota State Lottery sales were 352 million, including 211 million inscratch ticket sales and 141 million in online sales. 3 About 70 percent of theLottery’s online sales in 2003 came from Powerball, a multi-state game withjackpots that start at 10 million and increase until a winning ticket is sold.1Minn. Const., art. XIII, sec. 5.2Laws of Minnesota (1989), ch. 334, art. 3.3Unless indicated otherwise, all years cited in this report are fiscal years ending June 30.

4MINNESOTA STATE LOTTERYIn this chapter, we provide a general overview of the Lottery and the legal andsocial context in which it operates. We address the following questions: How is the Lottery organized, and what are the legal requirementsgoverning its operation? What provisions exist in the law to overseeLottery actions? How much money does the Lottery receive and what does it do withthe money? How have revenues and expenses changed since theLottery’s inception? What other forms of legal gambling are available to Minnesotans?To answer these questions, we reviewed state laws relating to the Lottery andother legal forms of gambling, interviewed numerous officials from the Lotteryand other state agencies, examined Minnesota State Lottery annual financialreports, and reviewed reports about other forms of legal gambling.ORGANIZATIONUnlike otherdepartmentheads appointedby the Governor,the Lotterydirector mayonly be removedfor cause.Under state law, the Minnesota State Lottery is operated by a director appointedby the Governor with the advice and consent of the Senate. 4 The Lottery directoris authorized to employ personnel to operate the Lottery; adopt rules and gameprocedures; issue contracts to retailers to sell Lottery tickets; contract withvendors for goods and services, advertise and promote the Lottery; and take stepsto ensure the integrity of, and public confidence in, the Lottery.5 Unlike mostother state agency heads appointed by the Governor, the Lottery director may onlybe removed for cause after a hearing and is not routinely replaced when a newGovernor assumes office.6 Minnesota’s first lottery director served in thatposition from 1989 until his death in January 2004. 7As shown in Figure 1.1, the Lottery is organized into four divisions: theExecutive, Administration, Operations, and Marketing divisions. The directorheads the Executive Division while each of the other divisions is headed by anassistant director. A fourth assistant director serves as the Lottery’s legal counsel.The Executive Division includes several small units responsible for legal issues,research and planning, public relations, security, and graphic arts. The OperationsDivision oversees ticket procurement and distribution and develops and maintainsinformation systems to keep track of sales and ensure the integrity of the games.The Marketing Division is responsible for advertising, promotions, and sales, and4Minn. Stat. (2003), §349A.02, subd. 1.5 Minn. Stat. (2003), §349A.02, subd. 3.6 Causes for removal are: (1) conflict of interest violations; (2) malfeasance, nonfeasance, ormisfeasance; and (3) failure to adequately perform the duties of director, as measured by Lotteryrevenues, efficiency of operations, public confidence in the integrity of the Lottery, and compliancewith requirements governing Lottery advertising. Minn. Stat. (2003), §349A.02, subd. 2.7 The original lottery legislation provided for a State Lottery Board consisting of theCommissioner of Gaming and six members appointed by the Governor. Laws of Minnesota (1989),ch. 334, art. 3, sec. 3. The board functioned in an advisory capacity and had no authority over therunning of the Lottery. It was abolished in 1995. Laws of Minnesota (1995), ch. 254, art 1, sec. 80.

BACKGROUND5Figure 1.1: Minnesota State Lottery OrganizationChart, November 2003DirectorExecutive(24 FTE)Administration(26 FTE)Marketing(64 FTE)Director’s OfficeAccountingPromotionsLegal CounselHuman ResourcesSales SupportPublic RelationsContracts andPurchasingRetail RelationsOperations(44 FTE)Instant GamesControlOnline GamesResearch andPlanningOffice ServicesSecurityMaintenanceGraphic ArtsRegional Offices:1 – Virginia2 – Detroit Lakes3 – Marshall4 – Brainerd5 – Owatonna6E – Eagan6W - EaganInformationSystemsWarehouseSOURCE: Minnesota State Lottery.it includes 30 sales representatives who provide the primary contact with retailestablishments that sell Lottery tickets. About one-third of the Lotteryemployees, including all of the home-based sales representatives, are assigned toregional offices located in Eagan, Owatonna, Marshall, Brainerd, Detroit Lakes,and Virginia. These offices serve as supply centers and meeting places for Lotter

Unclaimed Prize Money, 2001-03 86 4.3 FTE Staff at Minnesota and Comparison State Lotteries, FY 2002 97 4.4 Employee Compensation at Minnesota and Comparison State Lotteries, FY 2002 100 4.5 Office and Warehouse Space Used by Minnesota and Comparison State Lotteries, FY 2002 103 4.6 Office Space Used by Minnesota Agencies With 50 to 1,000

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