Lotto Agents’ Comparative Costs and
Commissions
Prepared for
Lottery Agents Association of Victoria
The Newsagents Association of NSW & ACT
Australian Newsagents Federation Limited (SA)
Independent Retailers Organisation (WA)
Golden Casket Agents Association (Qld)
Lotteries Agents Association Tasmania
Giles Consulting International
October 2006
State Lotto Agents Comparative Costs and Commissions 2006
CONTENTS
1
PURPOSE
1
2
METHODOLOGY AND DATA SOURCES
1
3
BACKGROUND AND CONTEXT
3
3.1
STRUCTURE
3
3.2
TRENDS
3
4
ORGANISATION AND INDUSTRY
5
5
DIRECT COSTS
6
6
INDIRECT COSTS
7
7
INTERNET LOTTO
8
8
COMMISSIONS
8
9
CONCLUSIONS
9
ATTACHMENTS
1
ORGANISATION AND I NDUSTRY
2
DIRECT COSTS
3
INDIRECT COSTS
4
INTERNET LOTTO ARRANGEMENTS
5
COMMISSIONS
Giles Consulting International
Lotto Agents Comparative Costs and Commissions 2006
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1
Purpose
This report provides an assessment of the lottery commissions/handling fees received by
agents and the charges and fees paid by agents for Lotto products in each State in
Australia.
The report is prepared for a consortium of Lotto agents’ associations in each state
comprising:
•
Lottery Agents Association of Victoria;
•
The Newsagents Association of NSW & ACT
•
Australian Newsagents Federation Limited (SA);
•
Independent Retailers Organisation (WA);
•
Golden Casket Agents Association (Qld), and
•
Lotteries Agents Association Tasmania.
2
Methodology and Data Sources
The data and analysis in the report is based on an overview of the Lotto industry provided
by Australian Gambling Statistics, 1979/80 to 2004/05 and data provided by each State
Lotto agency organisation covering•
Organisation detailso
Association Name
o
Contact Name and details
o
Number of association members
o
Total number of agents
o
Categories of agents and basis for categories
o
Agency periods and Licence term
Giles Consulting International
Lotto Agents Comparative Costs and Commissions 2006
•
•
o
Agency renewal process
o
Lotto products sold
2
Direct Costs
o
Application fees
o
Establishment fees
o
Equipment fees, Terminal fees- initial and ongoing fees
o
Fit out or Retail image required
o
Signage required
o
Rebate to upgrade
o
Retail Image Implementation
o
Freight costs
o
Training required
o
Agency transfer fees
o
Insurance
o
Cost of financial reports
o
Consumables, eg posters
o
Other costs and charges
o
Agent Sweep
o
Other direct costs
Indirect Costs
o
Floor space requirements or location
o
Business constraints or limits, e.g. no other sales from Lotto area
o
Opening hours requirements e.g. payouts on weekends
o
Prize Payout Amount
o
Any special factors for your state
o
Players Card
o
Other indirect costs
•
Internet Lotto Arrangements
•
Commissions
o
Oz Lotto, Saturday Lotto, Powerball and Weekday Lotto for 12, 18 and 24
games (12,18 and 25 games for Western Australia).
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Lotto Agents Comparative Costs and Commissions 2006
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The data provided by the state associations was compiled, tabulated, and returned to the
agencies for further verification. In addition to individual state verification, a meeting of
representatives of the associations also considered the responses to ensure greater
definitional consistency between the states. The required modifications, clarifications and
changes were made.
Despite the attention to providing “apples with apples” comparisons using consistent
definitions, as Lotto operations and terminology varies considerably between the states
and cost items are grouped differently, there remain some potential overlaps and grey
areas.
3
Background and Context
3.1
Structure
The lotteries sector is a long established and stable component of the broader Australian
Gambling industry. Lotteries are subject to state jurisdiction.
Agents of the state lottery companies are responsible for sales of Lotto products, many of
which are represented by state based agents’ associations. These associations are either
specific purpose associations such as in Victoria, Tasmania, and Queensland or part of
broader retail or newsagent associations in the other states. More than half of the Lotto
agents in Australia are members of agents’ associations.
3.2
Trends
With increased competition from other forms of gambling, particularly gaming machines,
total lotteries turnover has remained relatively stable in real terms in recent years. Key
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Lotto Agents Comparative Costs and Commissions 2006
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results from the recently released 2004/05 Australian Gambling Statistics data show the
following key performance indicators:1
•
In 2004/05 total gambling turnover (amount wagered but excluding agents’
commissions) on Lotto and Instant Lottery was $3,746,203 million, of which Lotto
products represented 84%;
•
Lotto and Instant Lottery products represented 2.98% of total Australian gaming
turnover;
•
•
1
Total Lotto and Instant lottery turnover in the states was:
o
NSW
$1,075,548m
o
Victoria
$924,955m
o
Queensland
$808,720m
o
South Australia
$274,411m
o
Western Australia
$518,563m
o
Tasmania
$67,525m
o
ACT
$42,438m
o
NT
$34,044m
Per capita Lotto and Instant lottery turnover in the states was:
o
NSW
$208.65
o
Victoria
$241.13
o
Queensland
$273.37
o
South Australia
$230.25
o
Western Australia
$343.62
o
Tasmania
$184.30
o
ACT
$170.85
o
NT
$239.77
Australian Gambling Statistics 1979/80 to 2004/05. (21 August 2006). Office of Economic and
Statistical Research, Queensland.
Giles Consulting International
Lotto Agents Comparative Costs and Commissions 2006
o
•
Australian average
5
$243.13
In terms of per capita Lotto and Instant lottery turnover, Western Australia is
significantly higher than average due to the absence of gaming machines, which in
other states accounts for by far the largest component of gaming turnover.
•
Of the other states, Queensland is well above average, Victoria, South Australia
and the Northern Territory at about average per capita levels and NSW, Tasmania
and the ACT below average. There are significant variations between per capita
Lotto and Instant Lotteries between the states. For example Queensland has about
average per capita Lotto turnover, but about double the national average in Instant
Lottery turnover.
•
From 2003/04 to 2004/05 Lotto turnover in Australia increased by 2.3%, and Instant
Lotteries declined by 0.12%. Lotto turnover growth was fastest in Queensland,
Western Australia and NSW, just positive in Victoria and Tasmania and declined
marginally in South Australia.
4
Organisation and Industry
The agents’ associations represent a significant share of the lotto agents in each state.
The table below shows the membership coverage for each state:
Table 1
State
NSW/ACT
Victoria
Queensland
South Australia
Western Australia
Tasmania
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Agent Association Industry Coverage
Association
membership
730
570
650
300
314
83
Estimated total
agents
1600
720
1100
400
NA
85
Lotto Agents Comparative Costs and Commissions 2006
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Three agent associations are specifically for lottery agents (Victoria, Queensland and
Tasmania) and agents in the other states are represented by broader retail or newsagent
associations.
Agencies in most states are classified according to turnover levels or between those agents
selling the full range of Lotto products and those selling only Instant Lotteries.
Most states now offer defined agency licence periods, usually from 3 to 5 years. The
renewal process is usually automatic, subject to satisfactory performance. There may be
probationary periods, which convert to a full agency if performance requirements are
met.
Although there are some variations between the states, the Lotto product line sold is
broadly similar.
Attachment 1 provides a summary of the key aspects of the organisation and structure of
lotto agents in each state.
5
Direct Costs
Attachment 2 provides details of the costs elements and the practices in the states. The
major features of the Direct Costs are:
•
Applicants for Lotto agencies pay an Application Fee, which ranges from $330 in
South Australia to $1000 in Western Australia with most states about $500.
•
The most significant difference between the states is between those states that
charge a relatively high Establishment Fee and relatively low ongoing fees (such as
Victoria, Tasmania and New South Wales) and those with lower Establishment Fees
but significantly higher ongoing Service Fees such as Queensland and to a lesser
extent South Australia.
•
In all states, an Equipment or Terminal fee is charged, but there is considerable
variation between the states as to the level and basis for the charge.
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Lotto Agents Comparative Costs and Commissions 2006
•
7
Fit out and Retail Image costs are incurred by all agents, with the requirements
and costs dependent on the category of the agency. Typically costs range from
$10,000 to $50,000 but may be higher. Lotto authorities tightly control the
implementation of the Retail Image programs.
•
Generally where specific signage is required, it is at the agent’s expense, and
generally there are no rebates available.
•
Freight costs required by the agent are at the agent’s expense in Victoria,
Tasmania and Queensland, but not in the other states.
•
Training requirements are compulsory and in most states comprise a 3-4 day
program. There is variation between the states as to the responsibility for the
training costs between the agents and the Lotto companies.
•
Lottery specific insurances are required at the agent’s cost. There is variation
between the states, but the premiums are generally less than $1000 per year.
•
A wide range of other minor costs, such as Financial Reports and Consumables, may
be incurred by the agent depending on the jurisdiction.
6
Indirect Costs
Lotto companies generally have very specific requirements for the location of agents’
Lotto operations, which are in prime traffic areas usually at the front of the store.
The Lotto operations areas in outlets are required to be dedicated to Lotto operations
only. There appears to be some variation between the degree and rigor of enforcement
from very tight in Queensland to more flexible in NSW.
With hours of business, there is some variation between the states, but generally opening
hours requirements are designed to align with Lotto draws, centre opening hours and the
objective of maximising sales opportunities.
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Lotto Agents Comparative Costs and Commissions 2006
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The prize payout amounts are normally in the range $500 to $1000, but can be increased
to $4000 to $5000.
Attachment 3 provides details of the treatment of each indirect cost item for each state.
7
Internet Lotto
There is considerable variation in the conduct of Internet Lotto and in the treatment of
commissions to agents. Internet Lotto is prohibited in NSW, under consideration in
Western Australia and South Australia, and operates in the other states.
Agents receive no commission in Victoria and Tasmania, but do so based on player
registration, in Queensland. Attachment 4 provides details.
8
Commissions
There are hundreds of possible combinations of Lotto products and numbers of games that
can be purchased. Based on advice from the state agents associations, the comparison of
commissions was limited to the most common games for each Lotto product, namely 12,
18 and 24 games (12, 18 and 25 for Western Australia). The Commission rate is the
handling fee as a percentage of the total fee that the customer pays.
In South Australia, there is a common 7% commission for all Lotto products. In the other
states there some patters but also important differences in commission rates, between
different Lotto products and between the numbers of games played within the same Lotto
product. The table below summarises some of the patterns and variations in commissions.
Giles Consulting International
Lotto Agents Comparative Costs and Commissions 2006
Table 2
9
Summary Commission Rates (%)
Products and
NSW/ACT
Vic/Tas
Qld
SA
Games
Oz Lotto
12
5.51
5.51
5.51
7.00
18
5.26
5.51
5.26
7.00
24•
NA
5.51
5.51
7.00
Mon/Wed Lotto
12
10.00
6.98
9.09
7.00
18
10.74
7.22
9.09
7.00
24•
9.43
6.98
9.09
7.00
Saturday Lotto
12
6.72
9.09
9.09
7.00
18
7.00
8.63
9.09
7.00
24•
7.49
9.09
9.09
7.00
Powerball
12
7.04
5.04
6.25
7.00
18
6.60
4.81
6.25
7.00
24•
6.38
5.04
6.25
7.00
•In Western Australia 25 games are the standard rather than 24.
WA•
8.39
8.16
8.25
NA
NA
NA
7.63
8.16
6.98
8.33
8.33
8.33
In general commissions are higher in Western Australia for Oz Lotto and for Powerball. The
uniform commission structure adopted in South Australia means that commissions are
higher than other states (except Western Australia) for Oz Lotto and for Powerball, but
lower than some states for Saturday Lotto and weekday Lotto. NSW rates are highest for
weekday Lotto but lowest for Saturday Lotto. Queensland rates are high for Saturday
Lotto, but on par or lower for the other products. Commission rates in Victoria tend to be
about average or below average, however Saturday Lotto commission rates are relatively
high.
Attachment 5 summarises the costs of games and the commissions for each of the states.
9
Conclusions
Lotto operations are performed on a state basis but there are some aspects of a national
approach. Lotto agents associations have a strong coverage in the industry.
Overall real per capita turnover is relatively flat, but this hides considerable differences
between the states. Similarly there are important differences in performance between
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Lotto Agents Comparative Costs and Commissions 2006
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Lotto and Instant Lotteries across the states and strong performance in one sector does
not automatically carry over to equal performance in the other closely related sector.
While there is a broad compatibility in operations and direct and indirect costs between
the states, there are also important differences. These differences are highlighted in the
report, but close attention to the detail provided in the Attachments is required because
the small and subtle differences can be critical to the business operations and
performance of the Lotto agents. Even the level of detail in the Attachments is a summary
of the situation of the conditions that exists in each state.
The main difference in the cost structure between the states is between states that have
relatively high initial entry fees and lower ongoing service fees (Victoria, Tasmania and
New South Wales) and those with lower entry costs but significantly higher ongoing service
fees (particularly Queensland).
Based on the data available for this study and the wide variation in cost and revenue input
factors, it is not possible to develop a break-even analysis tool to test the relative benefits
for agents between high entry fees and lower ongoing fees and the other option of low
entry fees and higher ongoing fees. Much greater control of the cost and revenue variables
would be required and this could only be undertaken using a case study type approach
taking typical examples of the alternative fee approaches.
There are very few clear and consistent patterns for Commission rates for Lotto products
within the states (except South Australia) and between the states.
Giles Consulting International
Lotto Agents Comparative Costs and Commissions 2006
DRAFT
Attachments
1
Organisation and Industry
2
Direct Costs
3
Indirect Costs
4
Internet Lotto Arrangements
5
Commissions
Giles Consulting International
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