Lottery director rejects all 6 bidders for lucrative ad account

November 26, 2007

In an unlucky turn for area ad agencies, Hoosier Lottery officials rebuffed all six bidders for the creative portion of its advertising account.

The rejection of all bidders is an unusual occurrence in the ad industry and it has never before happened with the lottery account, one of the most lucrative, high-profile jobs in the state. Five of the six bidders were local.

Some in the advertising community here consider the move a slap in the face that could strain relations between local agencies and lottery officials.

"There's a bitter taste in this market regarding that account," said Bruce Bryant, president of locally based Promotus Advertising and past president of Indianapolis AdClub, an association of local agencies. "They've done a good job of alienating themselves from a lot of top agencies in this market.

"To say the talent here is inadequate to handle that account is disrespectful. This has the potential to hurt the reputation of the entire local advertising agency community," added Bryant, whose firm was not involved in the most recent lottery bidding but has been involved in previous bids.

Agencies bidding for the creative account this year received a letter dated Nov. 14 signed by the lottery's executive director, Kathryn A. Densborn, stating, "... we have determined that no company demonstrated all the capabilities the Hoosier Lottery was seeking in connection with its overall marketing program and strategy."

Densborn, 55, replaced Esther Schneider last December. Schneider, who held the position for two years, did little to endear herself to the heads of local ad firms, some of whom said she acted as if she didn't respect their expertise.

The most recent move appears to continue that legacy of discontent.

"I'm not sure what they're looking for," said Roman Brand Group Chairman Dan Roman. "I guess I'm just miffed."

The ramifications of lottery officials' decision could be far-reaching, industry experts said.

"There's been some really good work that has come out of this market," said Ball State University advertising professor Bob Gustafson. "And if the lottery turns its back on that talent, it could be a blow that really shakes up the market."

The letter, Roman said, left bidders at a loss.

"I don't think anybody expected this," he said. "I'm as confused as anybody."

Lottery officials said they were looking for a strategy for media placement; interactive marketing; creative for radio, print and television ads; point of sale marketing; and a plan to bolster lottery shoppers' experiences.

"We felt no one agency was able to give us everything we asked for in the contract," said lottery spokesman Andrew Reed. "We were looking for strengths in certain areas."

Even before the bids were received, lottery officials had considered doing some advertising and marketing work in-house. Now there's a chance the amount of in-house work will increase, Reed said.

Part of that change in thinking is driven by the recent addition of several marketing-savvy employees to the lottery's 189-person staff, but Reed said lottery employees won't get bogged down in day-to-day tasks related to advertising and marketing.

He said the lottery likely will award work to agencies on a project-by-project basis and should determine an overall direction for its advertising campaign by January.

Still a plum account

The lottery account isn't the plum it was before state officials decided to bid media buying and creative segments separately. Still, the creative portion, valued at about $600,000 a year, remains one of the biggest accounts in the state.

Bandy Carroll Hellige got the contract in 2005 and was granted the first of two possible one-year extensions. But the second extension wasn't granted and the contract expired Oct. 31. Undeterred, Bandy Carroll, which is based in Louisville but has a significant presence in Indianapolis, was one of the bidders this year.

The other bidders for the lottery's creative contract were Hirons & Co., MZD Advertising and Roman Brand Group, all locally based, the Indianapolis office of Publicis and Chicago-based Tom Dick & Harry Advertising.

Fort Wayne-based Asher Agency handles media buying for the lottery, along with other state agencies.

When Bandy Carroll was hired, then-lottery Director Schneider said the firm would be graded on lottery revenue trends.

For the fiscal year ended June 30, 2006, the lottery had record sales of $816 million, breaking a 7-year-old record, and topping 2005 revenue by more than $76 million. The $218 million profit reaped by the lottery in fiscal 2006 was a 15-percent gain over 2005.

"We saw record scratch-off and Power Ball sales, total sales and the amount of money returned to the state," said Mark Carroll, Bandy Carroll partner. "We feel very, very good about our work for the lottery."

For the year ended this past June, both profit and revenue saw slight declines. The lottery made $216 million on revenue of $789 million.

Carroll said his firm was able to profit from the account while cutting expenses to the lottery. He said the region-wide exposure his firm received from the lottery account has been a big plus in growing his firm.

Carroll, like some other agency chiefs, refused to take shots at lottery officials for their unusual decision to reject all bidders.

"There's still bid work at stake, and I'm sure these agencies don't want to hurt their chances for future [lottery] work," said Ball State's Gustafson.

Dampened enthusiasm

The lottery's latest bidding process, however, might cause some of the state's top talent to reconsider doing business with the state agency, said industry experts, who estimated it cost $10,000 to $50,000 to prepare a bid for such an account.

"This most recent process is highly unusual," Gustafson said. "But for the lottery, this sort of thing seems like business as usual.

"This is a high-profile account that can be a showcase for an agency. But it's also political, and controversy seems to follow it, and I think that could be a turnoff."

While lottery officials said they might broaden their nets to bring in agencies to handle specific elements of the account, Promotus' Bryant said it would be a mistake to farm the work to out-of-state firms.

"Cultural nuances and political sensitivities are the biggest complications of an account like this," Bryant said. "Local agencies understand those intricacies far better than an out-of-state agency."

"We probably have the skills here in Indiana" to handle the account, said lottery spokesman Reed, but he added that lottery officials have not ruled out contracting with an out-of-state agency.

Going out of state would seem to contradict Gov. Mitch Daniels' Buy Indiana initiative.

Lottery officials may not have to look far to find the talent they want.

"We do have folks who have a lot of [creative advertising] talent in-house," Reed said. "We will evaluate in-house skills and decide what to seek from the outside."

Densborn formerly worked in marketing and sales at Indiana National Bank--now JP Morgan Chase. The Logansport native, a graduate of Indiana University's Kelley School of Business, later worked in residential real estate sales with Indianapolis-based Savage Landrigan Inc.

In November 2006, Densborn ran as the Republican candidate for the District 86 seat in the Indiana House. She lost to incumbent Democrat David Orentlicher.

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