Published: March 29, 2022

UPS Shipping contract hiccup spells $1 million headache for Massachusetts lottery

BOSTON (State House News Service) – Mark William Bracken was just a few days into his new job as interim executive director of the Massachusetts Lottery earlier this month when he had to scramble to address what Treasurer Deborah Goldberg called “more than a surprising big deal.”

Thanks to an expiring statewide contract for UPS shipping and an unexpected twist in the extension negotiations, Bracken began to mobilize the Lottery’s sales representatives into a contingency shipping service that could take the place of the ubiquitous brown trucks and handle the 750 to 800 packages the Lottery ships to retailers and partners each day.

“We had already contacted all of our sales reps and told our sales reps to empty out your cars, to get all the junk out of your cars,” Bracken, an assistant treasurer and director of the state’s Unclaimed Property Division who was tapped by Goldberg to lead the Lottery on a temporary basis, said during his first Lottery Commission meeting Tuesday. He added, “We were having them clear out their cars already just to be, in case we have to do this, we’re ready to go.”

It never came to that, but the situation made for a hectic start to Bracken’s tenure and is expected to lead to more than $1 million in extra shipping costs for the Lottery in the next fiscal year.

“Look at it this way, Mark, you got to meet a lot of people very quickly,” Goldberg said.

UPS has for years provided “significantly discounted rates” for shipping under an “umbrella contract” with the commonwealth’s Operational Services Division, Bracken said, and the Lottery is the single largest user of that statewide contract. “Anything we’re sending out to agents goes through UPS and our warehouse,” he said.

But the last contract expired March 20 and UPS balked at the last minute at re-upping the contract under the same terms and conditions as the previous agreement, Bracken and First Deputy Comptroller Jeffrey Shapiro said.

“UPS is no longer going to be signing state-specific contracts because the terms and conditions that require them to treat these deliveries differently are no longer worth it for them in a COVID environment where they have so much work coming in the door,” Shapiro, who represented the comptroller’s office on the Lottery Commission at Tuesday’s meeting, said. “You can take it at their business rates, which they would offer to every other business in the commonwealth, or you can find some other way to deliver it, is in essence what they said at the 11th hour.”

Goldberg said the end of the statewide contract with UPS came as “quite a shocking surprise.”

“This was a complete shock and out of left field for the commonwealth,” she said. “This is also really kind of another COVID issue because as everyone knows, everyone’s shopping and shipping and doing everything that requires UPS and FedEx and DHL and they don’t need our business as badly as they once did.”

Working with the comptroller’s office, Bracken and the Lottery were able to secure a temporary fix but the Lottery is now beginning to put together a procurement to find a more permanent solution.

For now, the Lottery is going to contract for UPS shipping through Sourcewell, which Bracken said is “a local government cooperative out of Minnesota and it allows any type of municipality, government agency, from across the country to join.” The Sourcewell contract includes negotiated rates, but they are not as favorable as the original statewide contract.

“The way I describe it is if the normal standard rack rate, published rate, is a 10 and the commonwealth’s negotiated rate is a 1, the Sourcewell rate is a 5,” Bracken said.

All told, the change in shipping contracts is expected to contribute to a 43 percent increase in Lottery shipping costs, he said. The Lottery had been estimating that it would need $2.7 million for shipping in fiscal year 2023, but is now expecting that figure to grow by about $1.2 million. The Lottery Commission on Tuesday voted to authorize the Lottery to spend up to $3.25 million to pay for the shipping contract between March 21 and November 30.

“We’re not happy about this cost increase, but in order to keep our daily operations going, we need to be able to use an overnight shipper,” Bracken said.

Lottery ticket sales and monthly profit dipped again in February as the agency dealt with the double-whammy of having sold fewer scratch tickets while also paying out tens of millions in scratch ticket grand prizes.

Bracken told the Lottery Commission on Tuesday morning that the Mass. Lottery sold $424.8 million worth of its products in February, $3.6 million less than in February 2021. The agency turned an estimated profit of $70.2 million last month, compared to $76.6 million in February 2021.

In his report, Bracken attributed part of the monthly performance to an “$11.9 million decrease in Instant game sales for the month, $38 million in Instant Ticket grand prizes being claimed for the month, and $4.1 million of multi-state game prize settlements that were processed in February relating to Powerball.”

One bright spot last month was Keno, which saw sales increase by $9 million, or 10.5 percent, from February 2021 to February 2022.

The Lottery estimates that it has generated a profit of $767 million through eight months of fiscal 2022 and, after accounting for six more days being included in the FY 2022 calculation, is running right on pace with its record-setting fiscal year 2021 totals.

Bracken said the Lottery’s year-to-date profits are $100,000 ahead of where they were at this point in fiscal 2021. The Lottery produced a record $1.112 billion in profit in fiscal 2021 for the Legislature to use as local aid.

Goldberg told state budget writers in December that she expects the Lottery will generate about $995 million in revenue for the state this fiscal year and roughly $1 billion in fiscal year 2023.

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