Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, April 27, 1990 TAG: 9004300205
SECTION: EDITORIAL PAGE: A14 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Now it has to worry about whether its top vendor will go bankrupt and tie up millions of dollars owed to the commonwealth.
Maybe it was too much to ask that the state anticipate this possibility when it got into the lottery business nearly two years ago. When the dust settles - which may not be for some time - the state needs to take steps to prevent getting caught in another such bind.
The lottery runs various games. One is the instant payoff, in which a buyer scratches his ticket and can tell on the spot if it's a winner. Currently there also are statewide on-line (computer-type) games such as Pick 3, which has a payoff every evening, and Lotto, every week. These are good money-makers; some weeks the lottery collects more than $13 million.
Convenience stores, where a person stops to buy gasoline or pick up cigarettes, sell many lottery chances. The Southland chain, which runs 7-Eleven and High's stores, has 838 outlets in Virginia; they account for 37 percent of all instant-game sales and 42 percent of on-line sales.
Depending on how good a week it is for the lottery, Southland's stores might hold as much as $9 million in money owed to the state. Virginia hedges against embezzlement by requiring each outlet be bonded, so most of that is covered against loss.
Left exposed, however, could be as much as $2.5 million. And Dallas-based Southland happens to carry a huge debt load.
In May alone, it faces interest payments totaling $3 million on junk bonds and bank loans. It is undergoing a massive financial restructuring and is asking its stockholders to accept a $400 million offer from a Japanese firm for 75 percent ownership.
If its maneuvers fail, Southland may seek protection and reorganization under Chapter 11 of the federal bankruptcy laws. In that event, the commonwealth would have to get in line with other creditors, and might have to settle, after a long wait, for less than full value of the debts.
To guard against that, the General Assembly approved emergency legislation a few days ago requiring Southland to put the lottery money it collects into a trust fund. Lottery Director Kenneth Thorson also could ask Southland to accelerate its payments. But the trust-fund arrangement might not stand up under federal law if bankruptcy is declared.
Even so, Thorson says bankruptcy would be better than Southland's closing down: That would mean an immediate loss in future sales and cash flow.
The same thing would result if the state took the option mentioned by state Sen. Dudley Emick of Fincastle: cutting Southland off as a vendor. "If they're not going to be square with us," he said, "we could revoke their licenses." But Thorson describes the company as completely open about its financial situation, and adds that it has never missed a payment from its lottery money.
While Southland is scraping to make ends meet, bonding companies won't be willing to increase the amount of protection per outlet. If the company can get out of the woods, however, the state should require larger bonds where appropriate.
Nowadays, the chances of a company's becoming a takeover target - and getting saddled with staggering debts - are a lot better than the odds on winning the lottery.
by CNB