December 17, 2020
The Honorable Janet D. Howell
Chairwoman, Senate Finance & Appropriations Committee
Room E509
900 E. Main St
Richmond, VA 23219
The Honorable Luke E. Torian
Chairman, House Appropriations Committee
Room W1304
900 E. Main St
Richmond, VA 23219
Dear Chairs Howell and Torian:
Language in the 2020-2022 biennium budget instructed the Virginia Lottery to “convene a
working group consisting of relevant agency personnel and representatives from a suitable
cross-section of the Lottery-licensed sales agents” to meet at least three times to examine
the Lottery’s retail commission, bonus and incentive programs, and to compare Virginia’s
program to jurisdictions that border Virginia. I am pleased to submit this report in
compliance with the budget language.
The Lottery convened a working group comprised of several agency managers, including the
directors of sales, finance, and government relations, as well as the Executive Director. The
working group included corporate representatives from 7-Eleven and Kroger, independent
restaurant and convenience store owners, a manager for a regional fuel and convenience
store chain, and the president of the Virginia Petroleum and Convenience Marketers
Association. This group met virtually for very productive conversations in August, October
and November. The Lottery appreciates the willingness of our valued retail partners to invest
time and effort in this initiative.
Conversations were guided by historical and comparative data on Virginia’s retailer
compensation program, which is attached for your reference. Here is a summary of relevant
highlights:
• Virginia’s 5% sales commission rate was established by the Virginia Lottery Board in
1988. In 1997, the Board expanded retailer compensation to include an additional
1% bonus on the cash value of every winning ticket redeemed at retail. The Lottery
statute empowers the Virginia Lottery Board to administer the retailer compensation
program.
December 17, 2020
Page Two
• Overall retailer compensation in FY89 was less than $21 million; in FY20, overall
retailer compensation exceeded $120 million, or nearly $23,500 on average per
location. Approximately 5,200 lottery retail locations earned over $109 million in
sales commissions and an additional $10.7 million in cashing bonuses.
• Virginia’s effective overall compensation rate currently stands at approximately 5.6%.
Among adjoining jurisdictions, Virginia, Kentucky, and Washington D.C. each provide
5% sales commission rates. Maryland’s selling commission is set at 5.5%, and West
Virginia and North Carolina each offer 7% sales commissions. Virginia, West Virginia,
and Kentucky also provide 1% cashing bonuses, Maryland offers a 3% cashing bonus
to retailers, Washington D.C. offers a hybrid cashing bonus of between 3% and 4%,
and North Carolina does not provide cashing bonuses.
• For scratch tickets, which comprise more than half of total lottery retail sales, retailer
earnings-per-transaction have increased 400%, from $0.05 in FY89 to $0.25 per
transaction in FY20. Since its founding, the Virginia Lottery has broadened its
product portfolio to include a variety of games at a variety of price points and prize
structures.
• The Lottery has introduced significant technological improvements which have, in
effect, automated many of the time-consuming audit and accounting obligations
initially experienced by retailers and their employees, and improved overall
efficiencies related to selling and servicing lottery products. This includes more than
2,000 vending machines at retail, for which host retailers continue to earn full 5%
sales commission and 1% cashing bonuses. Also, each retail location has a self-
service “ticket checker” for players to use to determine the winning value of tickets,
removing a time-consuming function historically required of retailer employees.
• Virginia’s statute authorizes lottery purchases by cash and debit card only, and
expressly prohibits purchases by credit cards. Beginning in 2018, the Lottery began
accepting cashless (debit card) payments through its vending machines, and cashless
payments currently represent about 10% of vending sales. The Lottery -- and not the
retailer -- pays the 1.5% banking transaction fee on each debit transaction at vending,
or approximately $1 million in transaction fees per year.
December 17, 2020
Page Three
• While the base selling commission rate has not changed since 1988, the total retailer
earnings have increased significantly over time as the direct result of overall Lottery
sales growth from $409 million in sales in FY89 to more than $2 billion in FY20. Since
the first ticket was sold in 1988, the Lottery has valued its partnerships with retailers
throughout Virginia, and continually works to responsibly increase sales and retailer
earnings at each licensed location.
As a result of conversations with the working group, Virginia Lottery leadership has
committed to take steps, in conjunction with the Board’s authority and approval, to deploy a
variety of available tools to increase the effective overall compensation rate, including
increased cashing bonuses and other incentive programs designed to increase overall sales
and strengthen the existing solid partnership between the Lottery and its retailer network.
Please let me know if you have questions or desire more information.
Sincerely yours,
Kevin Hall
c: April Kees, Director, Senate Finance & Appropriations Committee
Anne E. Oman, Staff Director, House Appropriations Committee
Ferhan Hamid, Chairman, Virginia Lottery Board
Members, Retailer Commission Workgroup
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Objectives
Item
488 #4c/HB30:
Independent Agencies - Virginia Lottery
Language:
"B.1
. The Director
of
the Virginia Lottery
sh
al
I convene a working group consisting
of
relevant
agency personnel and representatives from a suitable cross-section
of
the Lottery-licensed
sales
agents,
to
meet at least three times between July 1,
2020
and January
1,
2021 to examine the
following:
(i)
Virginia Lottery
sales
agent
co111pensation,
including standard
co111111issions
and any
bonuses and incentives which
are
paid; (ii)
how
Virginia Lottery
sales
agent
co111pensation
compares
to
jurisdictions that border Virginia; and (iii) the impacts on
sales
agent com missions
when Lottery purchases are made by means other than
cash.
2.
The Director
is
to share conclusions
of
the working group's analysis with the Chairs
of
the House
Appropriations Committee and the Senate Finance and Appropriations Committee no later than
January
1,
2021."
Compensation
Virginia
lottery
11
VACS-31-150. Lice,1sed Retailers· Compensation.
A.
A licensed retailer shall receive
up
to
5.0% compensation based
on
his
net
ticket
sales
and
up
to
1.0%
of
the
cash value
of
all prizes
which
the
retailer paid.
B.
Except
as
provided _pursuantto
the
State Lottery
Law{§
58.1-4000
ct
seq.
of
the
Code
of
Virginia),
the
board shall
approve
any
bonus
or
incentive system for
payment
to retailers. The director
may
then
award such cash bonuses
or
other
incentives
to
retailers.
C. Retailers
may
not
accept
any
compensation
for
the
sale
of
lottery
tickets
other
than compensation approved
under
this section. regardless
of
the
source.
D.
Nothing
in this regulation shall
be
inconsistent
with§§
58.1
·4006 D
and
58.1
·4007 A
11
of
the
Code
of
Virginia.
North
Carolina
State
Lotterv
§
18(·
142. Compe11sation
fodottery
game
retailers.
The
amoum
of
compensation
paid
to
lottery
game retailers for
their
sales
of
lottery
tickets
or
shares sh
al
I
be
seven percent (7%)
of
the
face value
of
the
tickets
or
shares sold for each
lottery
game. The Commission shall require submission
of
reports and remission
of
lottery
revenues to
the
Commission
on
a timely basis. (2005·
344,
s.
1;
2005-276,
s.
31.1
(n); 2009-357,
s.
11.)
Tennessee
Education
Lottery
§ 4-51-108(a)(6) Retailer Compensation.
(1)
The corporation shall
provide
for
compensation
to
lottery
retailers in
the
form
of
commissions for
the
sale and cashing
of
lottery
tickets
or
shares
in
an
amount
of
not
less than six and
one-half
percent {6 1/2%)
of
gross sales.
Each
lottery
retailer shall
be
required
to
cash
lottery
tickets
or
shares
up
to
the
amount
authorized
pursuantto
§
4-51
· 108(a}{6) in
the
manner
adopted
by
regulation, policy,
or
procedure
of
the
board.
(2)
In
addition
to
the
commissions for services rendered
by
lottery
retailers
pursuant
to
subdivision
(c)(
I),
the
corporation
may
provide
for
other
forms
of
compensation for services rendered
by
lottery
retailers relating
to
the
sale
of
lottery
tickets
or
shares.
Compensation
West
Virginia
Lotterv
§29-22-10. Licensed
lottery
sales ager1ts; commissions;
(11} Li<ensed
lottery
sales age,1ts shall receive seven peteent
of
gross sales as commission for
the
perforn1an<eof
their
duties: Provided. That a
portion
of
the
commission
not
to exceed
one
and
one
quarter
percent
of
gross sales
may
be
paid
from
unclaimed prize moneys accumulated
under
section sixteen
of
this article.
In
addition.
the
commission
may
promulgate
a bonus-incentive
plan
as additional <.ompensation
not
to
exceed
one
percent
of
annual gross sales. The
method
,;1nd
time
of
payment
sh
al
I
be
determined
by
the
commission;
Maryland
Lottery
§ 9-117. Lottery sales
agent
compensation
In general
(a)(1) A licensed
agent
shall receive regular commissions
of
5.5%
of
the
licensed agent's gross receipts
from
ticket
sales.
(2j A licensed
agent
may
further
receive a cashing fee
not
to
exceed 3%
of
valid prizes paid for services rendered in cashing
winning
tickets.
Bonus
or
incentive
(b)(l}
The Commission
may
authorize
the
payment
of
special bonuses
to
licensed agents
and
their employees.
(2)
The total
of
the
bonuses
may
not
exceed
one-half
of
1%
of
the
gross receipts from ticket sales
for
the
year for
which
the
bonuses are awarded.
(3)
Lottery
sales agents
may
not
offer
patrons inducements
of
alcoholic beverages to purchase
or
redeem
lottery
tickets.
Kentucky Lottery
AS
A
KENTUCKY
LOITERY
RETAILER:
5% Commission -On
the
sale
of
all
lottery
products
1 % Cashing Bonus - For all tickets cashed
at
your
store
1 % Selling Bonus -For all validated tickets over $600 sold
from
your
store,
including
bonuses for games
like
Keno
and
the
Powerball
<1nd
Mega
Millions
jackpot
games
State
Aggregate Retail
Commissions &
Bonuses
Kentucky 6.2%
North Carolina 7.0%
Tennessee 7.0%
Maryland 7.6%
Virginia 5.6%
West Virginia 7.0%
Total 6.7%
State
Sales Commissions
Kentucky 5.0%
Maryland 5.5%
North Carolina 7.0%
Tennessee 6.5%
Virginia 5.0%
West Virginia 7.0%
Total 6.0%
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$3.35
$3.51
$3.98
$4.17
$4.36
$4.65
$4.68
$4.99
$5.06
0
50
100
150
200
250
300
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Millions
Average Sale Total Transactions
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Lottery Sales and Retailer Earnings
$140
- Retailer Compensation - Total
Sales
$2,500
$120
$2,000
~
V>
z
$100
~
V,
0 z
::::;
0
....,
;:;
~
$1,500
....,
z
$80
i
z
"-
:a
V,
0
w
_,
u
$60
<(
0::
$1,000
V,
w
....,
....,
<(
~
b
U,J
$40
""
0::
V>
"'
$500
$20
$-
$-
1989 1991 1997
2002 2004 2006 2008 2010
2012
2014
2016
2018 2020
"'
z
0
::;
_,
i
z
$140
$120
$100
$80
$60
$40
$20
s-
I I
1989
1991
Retailer Earnings - $ vs.
o/o
- Retailer Compensation - compensation
Rate
5.8%
5.7%
5.6%
5.5%
5.4%
5.3%
5.2%
5.1%
5.0%
4.9%
4.8%
4.7%
1997
2002 2004 2006 2008 2010 2012 2014 2016
2018 2020
$23,476
$25,588
$34,570
$33,824
$8,418
$19,459
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
VA NC MD DC WV KY
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Cashless
Transactions
Lottery vending machines
accept
cashless
payments
Implemented in 2018
Lottery
pays
all
cashless
fees
Retailers
earn full cornrnissions on
vending
sales,
both
cash
and
cashless
Funds
come directly
to
Lottery,
do
not
flow through retailer's account
Average Lottery Vending
cashless
transaction
is
$21
(monthly averages
range
$19
-
$23)
$1
minimum; maximum
$300
per
transaction
About
2,000
machines in market,
continue
to
invest in expansion
Cashless
represents about
10%
of
total
vending
sales
Prizes
redeemed at vending represent
about
25°Ai
of
total vending
sales
Overall
Cashless
Fees
1.5%
of
total
cashless
activity
$1
million
in
fees
annually
About
2%
of
all Lottery
sales
are
from
cashless
at
vending