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Business News of Thursday, 14 July 2011

Source: GNA

NLA reduced commission to sustain stakeholders in the revenue chain

Accra, July 14, GNA - The National Lottery Authority (NLA) on
Thursday said it reduced the Commission rate to Lotto Marketing
Companies (LMCs) to sustain all stakeholders along the revenue chain.
"The NLA would like to work with all business minded people and
has strategies in place to enable it continue to be in operation," it
said in a statement issued in Accra by Mr Reagan Twum-Barimah, Brands
Strategy and Communications Manager of NLA.

The statement copied to Ghana News Agency said 93The NLA is
engaged in far reaching transformation aimed at maximising benefits to
its customers, retail agents and the State, even as it faces new
market competition from the telecommunications companies, food and
alcoholic beverage firms and the entertainment industry, who are now
also involved in the game of chance."
"There is therefore, the need to improve on the NLA's services by
making available and accessible our product to the customers."

FULL TEXT OF STATEMENT

The Facts behind the Ongoings at NLA

As you are probably aware, there is currently an impasse between the
National Lottery Authority and its retailers who are members of the
NLRU who market its products and facilitate their usage to the general
public, and who are s Lotto Marketing Companies (LMCs) but known as
=91Receivers'. This impasse has resulted in a strike action by LMCs who
are members of their labour union. This has attracted considerable
media coverage.

Consequently, the NLA sees good cause to make an official announcement
stating the facts of the situation from our perspective with a view to
correcting several misconceptions which have arisen and been passed
into the public domain through certain mass media reports.

The impasse has been caused by the decision by NLA's management to
reduce the Commissions that the Authority pays to LMCs on the business
they generate, from 25% to 20%. The LMCs are insisting that the 25%
rate of Commission be maintained, despite current trends and
circumstances which clearly show that this is not in the interest of
the Republic of Ghana and despite clear facts that those same
circumstances also allow the LMCs to be financially better off under
the NLA's proposed commission rate that they were prior to when the
circumstances arose.

THE PRIOR SITUATION

Prior to the NLA's reduction of the Commission rate to 20%, which took
effect from April this year, the percentage distribution of revenues
generated from the NLA's gaming activities were as follows:

Table 1.
TRANSACTION PERCENTAGE DISTRIBUTION

Lotto Intake 100.00%
, Retailer's Commission
25.00%,
Prize Win(s)
50.00%,
Statutory Taxes
3.75%, Technical Fees
6.00%, NLA Operational Expense
6.00%
, Capital Expenditure 1.20%, Contribution to Government 8.05%


Effectively this left the Government of Ghana, which owns the NLA with
barely 8% of its revenues, which is less than one third of what the
LMCs earned, despite the fact that most of the investment made in
licensed gaming activities is done by the government, through the NLA,
an not the LMCs themselves. Indeed, as key partners of the NLA, LMCs
have been well resourced by the NLA with the needed equipment and
services (free lottery machines, free paper rolls, subsidized GPRS
fees, free servicing of the lottery machines, bank service charges on
their payments, etc) to enable them effectively retail their products
and make huge returns on their own investments into their business
activities.

WHY THE REDUCTION IN THE COMMISSION RATE:

THE BUSINESS CASE

There are several inconvertible reasons for the NLA's decision to
review the Commission rate of the LMCs down to 20%.

One, as mentioned above is the need for government itself, as the main
investor in the sector, to have a fairer share of the revenue
generated be the NLA. The NLA is a significant source of funds for
state's Consolidation Fund, which is a pivotal source of financing
government expenditure both for recurrent and capital (developmental)
purposes. However the following table shows clearly that revenues
accruing from this purpose, which indeed was the very reason by the
NLA was established in the first place are minimal and indeed are very
small compared to the revenues accruing to the LMCs, despite the fact
that it is the former, not the latter that has made the huge
investments s that make the sector viable and profitable.

Kindly find below the contributions to the Government (Consolidated
Fund) and commission payments to Retailers for the last 10 years:


Table 2
YEAR
SALES
RETAILER COMMISSION
COMM. AS % OF SALES
Gov't (CF)
CF. AS % OF SALES

GH¢
GH¢

GH¢

2000
87,900,550.00
2,028,632.30
23.08
0
0.00
2001
11,688,154.30
2,956,752.00
25.30
1,2000,000.00
10.27
2002
11,117,974.00
2,786,961.10
25.07
1,3000,000.00
11.69
2003
18,877,673.80
4,704,848.60
24.92
1,4000,000.00
7.42
2004
29,988,607.00
8,385,909.00
27.96
3,00000,00.00
10.00
2005
41,386,969.50
10,397,617.70
25.12
3,00000,00.00
7.25
2006
50,973,700.60
12,636,830.20
24.79
4,00100,00.00
7.87
2007
85,023,915.00
20,634,434.00
24.27
6,000,000.00
7.06
2008
116,500,002.00
29,120,102.00
25.00
10,670,207.20
9.16
2009
124,712,367.00
30,411,272.00
24.39
12,699,998.18
10.18


Thus the reduction in the Commissions to LMCs will ensure a more
equitable sharing of revenues generated by the government to the
benefit of the Ghanaian citizenry.

Secondly, are very importantly, it should be known that the reduction
in the LMCs Commission rate does not in any way translate into a drop
in their income from serving as agents to the NLA. To the contrary,
the new dispensation is actually providing them with more income than
previously obtained under the operating dispensation when they enjoyed
a 25% Commission rate.

This is because, recent huge investments by the NLA in automation and
in new products has trebled the business volumes generated through the
Authority since those investments were begun and indeed,, business
turnover continues to register an annual growth rate of 30%. Thus,
even at the new 20% turnover rate, LMCs stand to make for themselves
nearly three times what they were earning prior to NLA's automation
and outdooring of several new products.

This deserves further exploration. Prior to 2006/2007, NLA's
operations were 100% manually coupon base. This created factors
limiting efficiency and effectiveness of the operation, primarily
bureaucracy and fraud leading to loss of revenue and sheer poor
operational productivity.

Over the past couple of years the NLA have consequently invested
heavily in transforming its erstwhile manual system of operation into
an automated system deploying GPRS Point of Sale Terminals with
computerized backend support. This has made operations more efficient
and reliable and has eliminated fraudulent practices.

It has also enabled fast credit; LMCs can purchase lotto credits from
partner banks with convenience. It has also enabled fast pay; winners
can redeem their automated tickets from any of NLA's partner banks.
Again it has enabled faster Commission payment; Commissions are paid
through the banks so LMCs can now access soft working capital loans
for their business.

Automation has also enabled the NLA to decentralize its operations and
it now runs 17 regional/district offices nationwide, enabling wider
market penetration and thus more Commissions for LMCs.

Also NLA has introduced five (5) additional games. The sheer variety
of games now on offer, and the resultant wider appeal to the populace
enables LMCs to sell lotto and consequently earn Commission almost
every day.

There is also a positive impact by the improved legal operational
environment for the lotto industry. The National Lotto Act 722,
passed in 2006 bans all illegal and provide lotto operations, thus
making the NLA the sole operator, manager, conductor and supervisor of
Lottery in Ghana. Therefore, retailers for the NLA have no
competitors in the industry.

The NLA's automation programme is continuing with the Authority
procuring10,000 portable data processing machines which have several
added advantages over the phase one machines and are being deployed
currently. They have been designed to provide sustained connectivity
thus offering more selling and playing time as they work on up to four
different networks on one SIM Card through the GPRS via Satellite.
Their handy, portable nature allows retailers to market lottery
products right at the doorsteps of customers, thus making lottery
products more accessible by all and at all times across the nation.
The new machines procured by the NLA also offer other revenue
opportunities such as additional games; payment centre for utility and
other services bills; money transfer and; mobile phone credit top ups
services which are being developed.

..

Despite these huge investments by the NLA, the Authority is still
committed to ensuring that customers get the best value for their
money to encourage them to continue patronizing its games, to ensure
continuity of the increased revenues being generated. To this end the
NLA has to bear the high risks of the popular 5/90 Fixed Odds System
in which wins average up to 55% and sometimes over 100% leaving the
Authority debts to clear with bank loans or overdrafts. The LMCs
enjoy the benefits of the increased patronage of this game without
bearing any of the financial risks.

In view of the clear case for the reduction of LMCs Commissions from
25% to 20% with a view to ensuring the sustainable viability of the
NLAs operations and the increased income which the LMC's themselves
now enjoy, the Authority has made concerted efforts to explain the
situation to the LMCs and thus win their support. These efforts have
included two meetings with the LMCs, an engagement session, public
education and a protected demonstration.

However the LMCs union unfortunately responded with a Court action
against the NLA. It is instructive that the Court ruled in favour of
the NLA and this finally set the grounds, with full legal backing, for
the implementation of the reduction in Commissions. However the LMC's
union has chose to disrespect and ignore the ruling of the Court which
it applied to itself and embark on its on-going strike action, backed
up by its on-going media interactions, which are full of deliberate
misinterpretations.

We would like to note that the Union's actions are largely informed by
its own internal issues which are not related to the facts of the
actual situation on the ground. Not only is the Union overselling its
membership strength but it is deliberately not letting its members the
truth of the situation because it fears that it would lose members or
even disintegrate when those members learn how they have been misled.

It is also very instructive that some of the Union leaders, are
selling the products, and have loaded lotto credits heavily on the eve
of the strike to take a good position to earn Commission.

It should also be noted that contrary to their claims, NLA's retailers
are not employees of the Authority, but rather are commission agents.
Therefore their argument regarding reduction in their 91pay' is not
sound. Also, the Union itself is not united, with an on-going power
tussle taking place for recognition as the leader and the contestants
are simply using the on-going situation to win the sympathy and
support of members in this regard. It has been observed that some of
their leaders are intimidating other members who want to sell by
closing down their Kiosks forcefully. They are also encouraging
illegal Banker to Banker Operations. The NLA will continue to protect
the National Interest in collaboration with the law enforcement
agencies to create the conducive environment for conduct of legitimate
business.

CONCLUSION

The NLA is engaged in far reaching transformation to aimed at
maximizing benefits to its customers, its retail agents and most
importantly, to the State, even as it faces new market competition
from the telecommunications companies, food and alcoholic beverage
firms and the entertainment industry, who are now also involved in the
game of chance. There is therefore the need to improve on the NLA's
services by making available and accessible our product to the
customers.

In is in view of all this that the NLA has had to reduce the
Commission rate to LMCs which it believes is necessary to sustain all
the stakeholders along the revenue chain. The NLA would like to work
with all business minded people and has strategies in place to enable
it continue to be in operation.
14 July 11

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