MHP Offers Pay Comparison for Lottery Marketing Work

by Kyle Massey  on Monday, Jan. 9, 2017 5:03 pm  

Sharon Tallach Vogelpohl

In the latest salvo in the dispute over a $34.5 million marketing contract for the Arkansas Scholarship Lottery, the advertising firm that previously handled the work has challenged the compensation it says its successor is poised to reap.

Little Rock advertising agency CJRW, the provisional contract winner, is set to receive a 44 percent increase in compensation for the same work done under the previous contract by Mangan Holcomb Partners, according to Sharon Tallach Vogelpohl, MHP's president.

Vogelpohl, whose agency has handled the lottery's marketing work for more than two years, wrote in a letter to Bishop Woosley, the lottery director, that the state seems set to pay CJRW $759,965 for the same 12 months' worth of services for which Mangan charged $525,674.

"Perhaps you have already addressed this in renegotiating with CJRW based on this being pointed out, but if not, we want to ensure you have the information you need to negotiate a contract in the best interest of the Lottery," Vogelpohl wrote.

More: See the complete letter from Vogelpohl to Woosley.

The letter, dated Monday and delivered to Woosley and Donna Bragg, the lottery's advertising and marketing director, based its calculations on a proposed CJRW compensation chart that was set to be reviewed by the Lottery Oversight Committee in a Dec. 15 meeting near the state Capitol. The compensation issue was dropped from the committee's agenda after the awarding of the contract to CJRW was officially protested by Mangan Holcomb and by the third finalist for the work, Ghidotti-Vines, a joint venture of Ghidotti Communications and Vines Media LLC, both of Little Rock.

Both protests, which focused on allegations of a conflict of interest in CJRW's plans to do marketing work for both the lottery and for longtime client Oaklawn Park, the Hot Springs racetrack and casino, were rejected last week by Edward Armstrong, director of the Office of State Procurement. Armstrong's findings presumably cleared the way for CJRW to wrap up the contract.

The difference in compensation comes down to a difference in the rate the agencies charge the lottery for media placement, the purchasing of advertising for which advertising agencies traditionally take a percentage. Vogelpohl's letter said Mangan Holcomb took a 5 percent share while CJRW would reap 15 percent. The dollar amounts were based on the lottery's marketing spending in the last 12 months with Mangan, along with "a side-by-side comparison of the exact same body of work if it were billed based on CJRW's proposed compensation structure," the letter said. "We thought this 'apples-to-apples' comparison would assist you in ensuring the absolute best value is negotiated for the state and all the stakeholders of the Lottery."

The accompanying chart noted that MHP received $200,766 in media commissions at a 5 percent rate for the $5 million value of the contract over one year. It also got $273,646 in agency fees and $51,261 in public relations fees for a total of $525,674. CJRW, the chart said, would get $708,704 in media commissions at a 15 percent rate, and while its deal calls for no agency fees, it would get an identical $51,261 for public relations. In all, CJRW's take would be $759,965, the chart said, $234,291 more than Mangan Holcomb's total.

"Also note that, with the increased budget that has been requested by the ASL in future years growing the budget from $5 million to $6.5 million and then $7 million, the majority of those funds would likely go, in our professional opinion, toward increased media placements and/or billable public relations activities," the letter said. By Vogelpohl's estimation, an addition of $1.5 million in media placement "would result in an additional $225,000 in fees at 15 percent versus $75,000 under the model under which all previous agencies have worked in providing this very service."

Vogelpohl said her firm worked under the same 5 percent media commission structure accepted by the first advertising firm to serve the lottery, the Communications Group of Little Rock.

The letter said Vogelpohl and her colleagues were "taken aback" by a remark from CJRW representative Gary Heathcott quoted in the Jan. 5 issue of Arkansas Business in which Heathcott predicted quick legislative approval of the contract with CJRW because the terms that it offered would "save the state hundreds of thousands annually."

 

 

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