Jerry Kopel

Wang Wang Blues, 2009

Aug. 1, 2009

By Jerry Kopel

The sweetest sounds came this way the second week in July. Thanks to Jack Boehm, appointed acting lottery director in April, 2008 and present lottery director since July, 2008. The sound was the Wang Computer System tossed out, replaced by "CLASS" an anonym for the lottery computer system manufactured by IBM and presently in use in nine other lottery states.

Does a column about a lottery computer system makes sense? It does when you consider the number of legislators who were not legislators in August of 2008. That's when State Auditor Sally Symanski released a five year performance audit on what was wrong with the lottery. The Wang Computer was at the top of the list.

Wang Laboratories was the original computer for the Colorado lottery back in 1982. And it was still there in 2008 even though Wang went out of business in 1992. Sounding like fingernails against a blackboard, the state auditor was joined every report by similar concerns raised by a required independent Certified Public Accountant 's annual fiscal report on how bad it was to continue to use Wang.

Wang was supposed to perform six critical tasks as well as less important jobs. These critical back-office functions included retailer billing, scratch ticket inventory, cash reconciliation at ticket counters, sales and marketing events, and promotional inventory management.

Wang could not do the job, so the lottery contracted with Scientific Games (Sci Games) the major Colorado lottery supplier to do tasks for additional pay. But the auditor wrote "neither retailer billing nor scratch ticket inventory has been fully migrated into the Sci Games contract and Sci and the lottery are unable to agree on what to do."

"There is a risk" wrote the auditor "of the state suffering substantial disruption....such as not billing retailers in a timely manner for millions of dollars in revenue from ticket sales."

The auditor found no one in charge on the contract. He noted from 2003 to 2008, lots of staff members (like individual ants in a colony) looked at tiny parts of the agency performance, but had no power to change anything. In February of 2008, Roxy Huber, Revenue Department executive director hired Boehm as chief operating officer.

A staffer told me when Boehm arrived and saw the Wang Computer he raised his voice and demanded the lottery "get that piece of junk off the premises". That did not happen until early July of 2009.

Where did the money come from to pay $5.5 million over three years for CLASS ? After paying $5.5 million, Colorado will only be responsible for annual maintenance costs. Actually those costs will be less than what Wang was costing Colorado's Lottery for maintenance.

With the new computer in place, the contract with Sci Games has had a rider attached which will cost Sci Games a $2 million contract reduction for each of the next three years. So in a around-about way Sci Games is buying Colorado a new computer.

Wang's use of outdated technology also limited its ability to expand the number and types of games it can offer and generate additional proceeds.

One new game is based on the powerball approach, and called "One Match Play". It would join Colorado with other states and bring in, wrote the auditor, $19.4 million in revenue during the game's first year. But Wang combined with Sci Games could not adequately support the increased column of accounting data.

All told, not counting subheads, there were 16 recommendations for changes in lottery operations from the state auditor. One is not due until October and one other is not due until 2010. Most of the 14 others should have been completed at least in part by July, 2009.

The statute giving the auditor authority to review the lottery only mentions that it MUST be done at least every five years. It can be done before that such as during the latter part of 2009 to see which suggestions had been implemented.

The October change may or may not occur. The auditor wrote "evaluate the potential effect of lowering commission rates to better align with national average and determine the impact on the retailer base and on lottery net proceeds, taking action as appropriate.

The auditor listed several states similar to Colorado in income and payment to vendors. One was Minnesota. Colorado's average commission rate is 6.5 percent as of 2006. Minnesota was 5.5 percent.

Total retailer compensation was $34.7 million for Colorado and $27.3 million for Minnesota.

Total ticket sales were $468.8 million for Colorado and $449.7 million for Minnesota.

Retailer compensation was 7.4 percent for Colorado and 6.1 percent for Minnesota.

If Colorado had been Minnesota, there would have been an extra $7 million going to use for Colorado programs.

What is interesting is that Mr. Boehm was deputy director of the Minnesota lottery and can validate their approach.

If the Joint House-Senate Legislative Audit Committee ask for a success report from the lottery before the end of 2009, I think the auditor's office would likely comply.

The lottery recently revealed gross sales performance for the fiscal year ending on June 30, 2009 as $493.4 million. When the independent CPA audit numbers are released later this year, this column will provide you an accurate compilation on money received and money paid out.

(Jerry Kopel served 22 years in the Colorado House.)

Home  Full archive  Biographies  Colorado history  Colorado legislature  Colorado politics   Colo. & U.S. Constitutions  Ballot issues  Consumer issues  Criminal law  Gambling  Sunrise/sunset (prof. licensing)


Copyright 2015 Jerry Kopel & David Kopel