Tuesday, 25 February 2003

Leadership Stakes

Speaker: Jan Stewart
There's big money in Australia's lotteries and not just for the lucky few who win Lotto. Every year state lotteries raise millions of dollars for Government revenue and for a host of beneficiaries including arts and community groups. Big money, big business and big challenges as the Internet turns gambling into a global experience.

After a decade as CEO of the WA Lotteries Commission, Jan Stewart is one of the longest serving and most innovative leaders in the field.

She has been the driving force behind a complete re-branding of the Western Australian lottery in order to secure the future of the business, bringing a new focus on the link between lottery games and support for the community.

Transcript

This is a transcript of the address given to the AFR BOSS Club in Melbourne on February 25 by Jan Stewart, CEO of the Lotteries Commsision of WA.

A LOTTERY BRAND FOR THE NEW CENTURY - CONTRIBUTING TO THE WESTERN AUSTRALIAN COMMUNITY

Before I begin, I need to acknowledge my friends and colleagues from the other Australian lotteries, Tattersall¹s, South Australia, New South Wales, and Golden Casket.

Firstly, to say how much I respect them as leaders in our industry and in their own community and secondly to say whatever I say here today are my thoughts, not those of the Australian lotteries industry.

Let me start with a quick overview of my own business in the gaming business, and what has been happening in the lotteries part of that business.

Gambling - perhaps the world¹s 2nd oldest entertainment? And certainly forms of gambling have been around a very long time. Certainly one of the growth industries in recent years.

Globally it¹s estimated that $350 billion was lost last year by gamblers, on turnover of $2.5 trillion. Australians are amongst the world¹s most enthusiastic gamblers, as we know. In fact the Australian gambling market has grown by 273% in past 10 years.

Last year the Australian gambling industry turned over $118 billion. Australian gamblers lost $14.4 billion. Well over half of this was lost on electronic gaming machines (pokies). Australia is home to 20% of the world¹s poker machines, now in hotels and clubs in every State except WA.

So it¹s not surprising that while net gambling expenditure (turnover less winnings) in Australia is approximately 3.4% of household disposable income in Australia, in WA it is just 1.67%.

Or that WA has the lowest annual per capita gambling expenditure (turnover less prizes) in Australia ($464 per person). While NT has the highest the highest ($1,251 per person).

It¹s therefore hardly surprising that there has been considerable debate in recent years on social and economic costs and benefits of gambling. For example, the piece in The Age today, quoting Professor Abbott on the very high levels of problem gambling in Australia.

If you¹ve read the most recent report of the Federal Government¹s Gambling Inquiry, it would suggest for many the jury is still out on the overall benefits of the gambling industry.

Although lotteries are seen as having a net positive benefit, but in any event state governments are now highly dependant on gambling taxation receive approximately $4.5 billion in taxation. So quite apart from all the evidence that gambling in some form or another has been a feature of human behaviour for thousands of years, it is a very important industry sector and seems here to stay.

LOTTERIES

So where does the lottery industry fit in?

Today 141 Lotteries (73 countries) are members of the World Lottery Association. But while it is undoubtedly a part of the global gambling industry it hasn¹t shared in the glittering growth of that industry.

While the global gambling industry has grown by 273% in the past 10 years, the lotteries industry has grown by just 28% over that period. In Australia, lotteries turnover now around $3.5 billion annually, with net expenditure by players at $1.4 billion. Lotteries share of the gambling market in Australia has actually declined from 20% in 1991-92 to just 10% in 2000-01.

In Australia as elsewhere, the golden era of growth for lotteries was the launch of Lotto around 25 years ago [our 25th anniversary in February next year], initially as a State based game, later a National game. No other lottery product has caught the imagination of players in the same way.

For a small outlay, anyone can give themselves permission to dream that this time next week they could be a millionaire. All you need are six numbers!

Lotto effectively signed the death warrant for the traditional draw lottery, on which all lotteries in Australia were originally based. And no lottery product launched since has matched its appeal.

WESTERN AUSTRALIA

Western Australia¹s lottery jurisdiction - one of the world¹s smallest lotteries by population, one of the world¹s largest in terms of geography.

We like to think we are one of the more successful lotteries in a purely commercial sense, with one of the highest per capita sales of Lotto in the world. [Admittedly, the comparatively limited competitive environment in Western Australia does help with that figure].

So while WA has Australia¹s lowest overall gambling expenditure [half that of the other States], we have the highest per capita lotteries sales, with around 10% of the population our market share is between 15 - 16%.

And this month in Western Australia we are celebrating our 70th birthday, having been established in 1933 during the depression to raise funds for charity.

Last year our turnover was $455 million. This year our sales will be $480 million. Of that, $400 million is from Lotto [80% of turnover]. And $75 million from our instant tickets, which we market under the brand Scratch¹n¹Win.

And we will distribute back to the community and government for a range of good causes a total of $135 million. I will explain how we in Western Australia distribute our profits in this presentation.

That¹s an introduction to my industry and my organisation.

Let me tell you a little about myself.

The organisers of this event suggested that the audiences who come to these events are always interested to know something about what led to people arriving at their positions, what motivates them and what influences the way they do their jobs.

So just briefly, I was a child of the 60s, and while not quite into Flower Power, I certainly have been known to sing along to the odd Peter, Paul and Mary peace song, and was strongly influenced by the values of that time.

I originally studied history at the UWA, then undertook a masters degree in Social Work with a belief [a belief I still hold] that somehow I could make a contribution to the community through that profession.

The first half of my working life I spent practising clinical social work, firstly at Perth¹s major psychiatric hospital, then for 13 years at our major children¹s hospital.

It was there, working with families facing all sorts of terrible health crises with their children and poverty - and homelessness in some cases - that I came to see the absolute importance of community, and what people are today increasingly calling the "third sector," that vast range of organizations of varying sizes and purposes who operate as the third leg of the OEstool," which makes up the formal institutions of our society with its other OElegs" being the government or public sector and the business sector, both large and small.

It was that OEthird sector" - what an American colleague of mine who runs a very large Foundation in San Jose, the Community Foundation of Silicon Valley now promotes - said should be known as OEPublic Benefit" organizations.

Rather than the negative and not very helpful description we commonly use, Non-Government Organizations, or not-for-profit, which was struggling with very limited resources to provide the long term support services needed by the families I was trying to help.

So it was a total serendipity that I ended up running the lottery in Western Australia. It began for me as a temporary part time consultancy in 1987 when I was out of the full time workforce raising small children, employed to give the then Board of the Commission advice on some of the increasingly complex applications for grants they were receiving, the first time the Commission had ever done that.

And somehow that has led to me standing here today after nearly 11 years as Chief Executive of the Commission, talking about our role in Western Australia, and how we seek to make a contribution to our own community, and to play our part in the growing movement by the business sector to take a stronger role in the community, and to understand what those current OEbuzz words" like Corporate Social Responsibility and its related term OEBusiness Philanthropy," means for us.

I know that you in Melbourne have a strong tradition of philanthropy, you are home to Philanthropy Australia, an important organization which brings private and corporate philanthropists together to encourage responsible and creative grant making.

This means in many ways I may be teaching my grand parents to OEsuck eggs, so this is simply what we do in the West. So first I'm going to talk about our lottery, our new corporate branding strategy and the values on which it is based which might be of interest to those of you with a marketing background, and then our approach to philanthropy.

At one level, lottery is a fairly simple industry. As a colleague once said, a giant chook raffle! You buy a ticket and if you get lucky you get a very large chook indeed. (Although now we need a very large and expensive computer to create the chook, and an awful lot of regulators to make sure it¹s a proper chook). So when it comes to lottery marketing and communications, it used to be pretty simple. Just show me the money!

But today I want to talk about why we in the West and others in the industry have chosen to depart from that narrow presentation of ourselves and our products. I want to talk about the lottery as a community citizen and benefactor, because lotteries, unlike other sectors of the gambling industry, have a long heritage of being linked to good causes.

The lottery in Western Australia had its origins as a source of funds for the poor of the depression, and continues today as a vital source of financial support for charities, hospitals, sports and the arts.

In our case we have sought to take this financial support role a step further through our vision of playing a broader leadership role in Western Australia. We have set ourselves the challenge of understanding and reflecting community concerns, dreams and values.

And to be a catalyst for positive social change, to be a partner with others in Government and business, and sometimes to be a leader in some remarkable community projects.

Until recently, the Lotteries Commission was a somewhat different organisation from that we have become and are still developing. We operated two quite separate roles with a distinct separation in the organization - those who ran the commercial operations and those who managed the funding program - to distribute the profits to the community.

As the outcome of a major strategic planning exercise 5 years ago, we moved away from a purely financial performance measurement system, and instead adopted a balanced-card form of performance measurement. We also determined to take a far more holistic approach to the management of our business.

We set about measuring our success in terms of the needs and opinions of the community and our customers, the development of our staff, our business innovation as well as obviously our profitability.

We reviewed our core values and asked could we really align those community based values with a business which is driven by a vision of material wealth (or at least the hope of OEeasy money¹).

In the past we didn¹t even try to do so - our marketing was focused almost exclusively on winning big money. It was a good advertisement program and served its purpose for its time, but there¹s not much there that reflects community concerns and that appeals to the better side of human nature. But the times they are a changing.

While we and our colleagues in the Australian lotteries industry have been very successful, our capacity to maintain our returns to our beneficiaries - while very good this year,which for us is the fundamental driver of business strategy - is far from assured long term, and there are some challenges which not addressed have the potential to erode that return.

Three challenges face the industry today:

The first is the challenge to maintain and grow sales responsibly of a very successful product but one which reached maturity some time ago.

The second is the challenges of the new world in which traditional borders and jurisdictions are becoming less and less relevant and where competition comes from many directions.

And the third for me personally, is to determine what are the responsibilities of an organisation like mine, in a time of changing community values - in an increasingly anxious world with the growing gap between ³haves and have nots²; of spectacular corporate collapses; of increasing evidence of loneliness and despair in many parts of our community; and now of the threat of terrorism and war and its impact on our lives and economy.

In Western Australia, lottery sales per capita are already the highest in the country and in top 5 in the world. As I said, the limited direct competition in the gaming market in Western Australia certainly does help, although we like to think the community support we have built is also part of it.

Average weekly lottery sales per capita September 2002:

• WA: $4.85
• Qld: $4.18
• SA: $4.33
• Tattersallís: $3.80
• NSW: $3.41

So growing sales responsibly from this base is a major challenge.

In this new world order we asked ourselves how we should continue to secure and grow our own player base, given that we are confined to the boundaries of our State for our market.

These three challenges, together with our vision for being part of contributing more broadly to our community, have led us to a complete re-appraisal of how we present ourselves and market our products, and also to the way we manage our organization and our people.

Obviously our business strategy has other elements, including new product development, but what I want to focus on in this part of the presentation today is our new branding strategy, and its links to our corporate social responsibility.

A strategy for the future: Establish a Strong and Unique Lottery Brand

Two years ago research showed that while Lotto was an immensely strong brand in Western Australia, the overarching corporate brand for our business was weak.

For our friends, the grant recipients, retailers, our suppliers and our own team at the Commission, there was reasonable recognition and for some a strong emotional connection. We and they knew what we stood for and the value of our contribution in the community.

But not to the wider public, including the hundreds of thousands who play our games. There was little recognition of the corporate brand nor any connection between the major Lotto brand and our other products, especially our Scratch tickets, and certainly no emotional connection to the Lotteries Commission except for those lucky few who turned up at head office to pick up the big prize. (That certainly creates an immediate emotional connection).

The organisation behind the Lotto dream was seen to have all the appeal of a government bureaucracy. The research confirmed the need for an overarching brand for our business- one which would be tied to our core mission and values rather than one of our products. Which could be the vehicle for change with our staff, with our retailers and other stakeholders?

• One which could link our products to the Commission¹s unique community funding role.
• Which would give all our products legitimacy and help build our support in the community and ultimately our sales.

This would be the brand that would remain a constant even as our games might change in the future. One which was more truthful to our own values and so had the power to motivate and inspire our own people and our retailers.

During the last two years we have worked to develop a brand from the inside out for the Western Australian lottery. It has been built around four core attributes which are both descriptive, and aspirational, what we believe is the best of us and what we want to be even more.

Rewarding, Inspiring, Trusted, Engaging

Those words have become the touchstones for what we do and how we behave. And they apply to all aspects of our business. So how has this manifest itself?

We are preparing to jettison our old corporate brand identity over the next few months, what we call the Lotteries OEfan" - and even our name of 70 years OEThe Lotteries Commission," for a name and brand identity which is contemporary, better reflects our brand attributes.

Lotterywest. A lottery for Western Australia, a much simpler name with a logo which will enable us far more effectively to link to our products and to our community role.

Something clearly seen in these advertisements which will run after every Lotto draw in Western Australia, and which we hope will do two things - remind players that they are actively participating in something much bigger than a punt for themselves, and also pay tribute to the community organizations featured.

Can the dream of a huge personal windfall be reconciled with the core community values of Lotterywest ?

We believe it can and our latest advertising campaigns have been developed on that premise.

(The campaign includes) scenarios which reflect the aspiration of different demographics, and which while personal dreams carry a theme of sharing and relationship, not only the material aspect of what money can buy. This campaign will be launched at the end of April, so I can¹t tell you yet if it will work, but it is based on very solid research, and we think they are the best ads we¹ve ever made.

At the moment we are in the early stages of the launch of Lotterywest. The next phase is to translate it into the retail environment. Within three years we will also have transformed the way we look to our players at point of purchase, and have completed the total transformation of our business.

But the ultimate point of this strategy is not about a new logo, it¹s about operating our lottery business as effectively and efficiently as we can because of our responsibility to be able to continue to contribute to the well being of people in Western Australia.

So this last part of my talk is an overview of our philanthropic role in Western Australia, with a brief overview of one of our newest and potentially most exciting projects, our business/community partnerships initiative.

Ultimately, all our business activity, including the investment we are making in the new branding, is directed at optimizing our returns to our key beneficiaries.

Under the Western Australian legislation this means 30¢ in every $1 is split between our Health Department [16% of turnover]; the Department of Culture and the Arts [2%of turnover] where the funding is used to support around 25 different major arts groups; our ballet; our opera company; the WA Symphony Orchestra and many others; and our Department of Sport and Recreation [2% of turnover] where it is used to fund the WA Institute of Sport for our elite athletes, as well as over 120 different sporting associations.

While Lotterywest has no direct part in how the money for health, the arts and sports is used, we take a great interest and pride in being able to support these groups, and all the so called OEstatutory recipients give us due recognition on all printed material and public occasions.

Each year we find an occasion to present our annual cheque to the Minister for Health. This year the presentation took place at the opening of the newest and largest of our Lottery Houses, a program I¹ll explain later if we still have time.

But our passion and commitment to the community is most directly expressed through our own Lotterywest grants program, the distribution of around $48 - $50 million we make each year directly to Western Australian community organizations.

Again, just to give a quick explanation, an eligible organisation under our Act is any not-for-profit community organisation, or a local government authority, and an eligible purpose is simply an activity which is charitable or benevolent.

We don¹t have to concern ourselves with whether the organization has tax deductable status, we just have to be satisfied that they are a reputable community organisation doing basically good works.

In addition, our Act specifies that we fund our annual Perth International Arts Festival and our Commercial Film Industry. Our approach to managing that particular aspect of our funding, around $3 million each (and likely to increase next year) is a story in itself.

But what I want to do is to focus very briefly on our approach to our own very broad direct grants program, and then our partnership with our business community.

Originally, until 12 years ago, the approach was fairly simple - a basically passive, submission based response to letters asking for help from traditional charitable groups - and the grants were essentially one-off capital grants for equipment and buildings. Not that we didn¹t support vital services, eg. St John Ambulance; Royal Flying Doctor Service; Child Health Services and many others. Decisions are taken by a 6 member Government appointed Board, and final approval (but not direction) is given by the Minister.

Over the past 10 years we have taken an increasingly proactive and professional approach to our role in our community. From 1987 with me working for 15 hours a week, we now have a team of around 12 professional grants staff, plus administrative support.

So now we have:

• 10,000 Western Australian community groups on data base
• 1686 applications received last year
• 1418 funded last year

Grants range from $1,000 to $4 million for a whole range of purposes, capital to project costs.

In 2002 we were able to meet the vast majority of requests - 94% success rate.

Have developed 4 broad themes:

• supporting the development of the not-for-profit sector (including infrastructure support such as training and professional development)
• supporting the development of the community (in broadest sense includes grants to traditional charitable groups)
• supporting the conservation and interpretation of our heritage and natural environment
• promoting participation in social, recreational and cultural activity

Fundamental to our funding approach are the following:

• Submission Based Funding Model. We try to respond to what the community defines as its need. Generally, applications are made against very broad policies or criteria and at any time (applications and guidelines are on Lotterywestís website).

  Funding rounds are used only where we have to manage a limited budget (eg. medical research), or where a new funding initiative is put to the OEmarket¹ and a contained approach is required to gauge demand and understand policy impacts, otherwise it¹s an open door anytime.

  Developmental Approach Community Funding staff work with applicants to ensure that the proposal for consideration is fundable. This often involves working with the community group to guide and shape projects, or add value to projects based on our considerable networks, sector knowledge and individual skills.

  The primary intent is to fund. We work with underdeveloped proposals to get them to a supportable state, and encourage community organisations to work collaboratively and form partnerships with others in the sector and with the business sector to realise resource efficiencies and maximise community benefit.

  Quality of Life/Needs of Disadvantaged Balance. We have been in a position in recent years to meet the majority of requests and to support initiatives which provide essential services and support to socially and economically disadvantaged people, as well as those that will enhance our quality of life (eg. events and festivals, Australia Day, major capital projects or cultural activities).

• Flexible Grant Making. Our policy framework provides us with a broad enough tool for managing grant making and budgeting against key program areas, but can be modified very quickly to respond to changing needs.
• Complementary Funding Source. We are rarely a sole contributor to community projects. Our process works towards bringing all sources of funding, policy and other stakeholders to the table. This might bring in other government agencies, or businesses who might be relevant partners in the venture. Frequently we are the first cab off the rank, and our reputation for responsible grant making often has given others the confidence to join in.

So if there¹s still a bit of time, let me give you just three specific examples of the broader more developmental role we have taken in recent times :

1. What we call our Connected Communities Program and Social Research.

   These programs have been developed in partnership with a number of community representatives and academics. We invited collaborative proposals which would creatively address community needs, and decisions were guided by an expert advisory panel.

   So far we have funded 10 Social Research and 13 Connected Communities projects and spent a total of $2 + million, and some projects are showing very promising results. Theme is collaboration/partnership.

   Just one of those projects was a joint venture by 3 Western Australian organizations called Exploring Images and Visions of Father: Evolving Expectations in a Changing Society, a story which was picked up in The West Australian last week.

2. Lotteries House Program

   This is one of our flagship programs. It began in 1989 with the purchase of a building for shared facilities for a number of different community groups, not unlike Ross House in central Melbourne.]

   We have now worked with the community over the past 10 years, and have not only paid for, but actively developed and facilitated the building and development of 21 facilities from Broome in the north, to Esperance in our south west.

   The theme again with the Lotteries House Program is to encourage sharing, collaboration, and partnership. An evidence is that the synergies of bringing disparate groups under one roof recreates all kinds of opportunities for sharing. The most recent one and most expensive and longest in the gestation was The Niche.

3. And the final and most recent initiative I want to describe is the one I¹m finding the most exciting, our Business/Community Partnership Project.

   All of you in this room will be familiar with the growing interest and perhaps debate about corporate citizenship, the proper role of business in the community, and the balance of responsibilities to shareholders, employees, the wider community, and to the environment. The Prime Minister even established a round table to give his leadership to this debate.

   Because of our unique position as a Government entity, but one with a commercial focus and strong business connections, and with our relationship with thousands of Western Australian community groups, we saw the opportunity to use this slightly unusual position to facilitate networks between these groups.

   We knew many of our business partners and others in the Western Australian business community were seeking to be good corporate citizens and to expand their philanthropic activity. We knew our grant recipients needed more help than we could give them, so we decided to find a way of facilitating connections which could bring benefits to both parties in Western Australia.

   Now I don't presume to say we are alone in doing this in Western Australia. It's an idea whose time has come and it's gratifying to see so many in our business sector taking on new levels of leadership in philanthropy in the best sense of the word - companies like Wesfarmers, Rio Tinto, Alcoa, Woodside and many others -and many of the smaller ones as well (eg. our own suppliers of legal services, marketing, and market research).

   This quote is from part of the study we commissioned, and is by Michael Chaney, Chief Executive Officer of Wesfarmers, and is typical of the response we received in our initital qualitivie study.

   "There's a debate in every boardroom in the country about whether or not companies should give money to good causes. On one side this is shareholders money and we can't give it away.

   On the other it's in the company's interest to contribute to community causes because that fosters support for the company in the community. We¹ve come down on the latter side and said it¹s in our interest to do this." Michael Chaney, November 2002

   The project has brought a number of business leaders from a wide range of organisations to our table. After a series of discussions over a lengthy period, and forums last year, we made a grant to a consortium consisting of WACOSS, Curtin University, Philanthropy Australia in Melbourne and Partnerships WA.

   The grant is initially to map what is actually happening in Western Australia so we can get a better understanding of what is working, and what benefits both parties believe they receive from a business/community organization partnership.

   As I speak, the consortium has finished the first phase of the literature review and qualitative study and an environmental scan which included in depth interviews with leaders of industry and the community in Western Australia. We have now just embarked on a larger qualitative study.

   This will be an extensive survey of 4000 businesses, government, and community groups. We will be asking them to tell us about their decision-making process, their experience of such partnerships, why and how they chose each other, and what benefits both parties think they received, and what lessons they¹ve learned from their experience.

   We see it as an opportunity to promote more widely the kind of outcome that we saw with the recent opening of Foodbank, the first community organization to carry our new Lotterywest logo.

   As a result of an initial grant to develop a business plan we made to a consortium, Foodbank was established and 5 years later this huge new warehouse (the third phase) has been opened and all those other businesses have come into the project - transport, media, building and expertise.

   It is a true example of a balanced partnership. Foodbank provides its business partners with service as well as receiving it to deliver its service to its clients.

Conclusion

This has been a long story of the challenges facing the lottery industry, our new corporate positioning and of our vision for making a difference to the Western Australian community.

We have been given the privilege by our Government, and the responsibility of being able to return the funds to the community who play our games.

It is a different approach for the operation of a lottery from some other places. Our partnerships and some of our greatest supporters in Western Australia include those who might normally be expected to be critical of gambling, albeit we see lotteries at the softer end of the continuum.

Running a lottery is great fun. We know people enjoy a flutter and they are entitled to do that knowing not only that their lives and the lives of people they love might be transformed, but if not, that they have contributed to something that has made a difference to the community in which they live.

Being part of our community in this way has certainly been good for our business. We see many of our colleagues in all sorts of businesses moving along the same path.

As I said earlier, I think most of us recognise we live in troubling and changing times. The challenges we face will only be addressed by true partnerships between our government, our business sector, and that growing and vital third sector community organizations.

Thank you for the opportunity to speak to you today.

Venue

The Westin Melbourne, 205 Collins Street