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Illinois to fire private lottery operator

Illinois LotteryIllinois Lottery: Illinois to fire private lottery operator
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The bumpy marriage between the state and the private company that operates the Illinois Lottery is ending in a divorce.

Gov. Pat Quinn's office confirmed to me today that it is ending its contract with Northstar Lottery Group LLC to operate the $2 billion-a-year lottery system, seven years earlier than scheduled.

It is not yet certain whether the separation will be voluntary by both parties, but a decision to end the contract has been made.

"The governor's office has directed the lottery to end its relationship with Northstar," gubernatorial spokesman Grant Klinzman said in an email that he later verified in a brief phone conversation. "The administration has had serious concerns with Northstar's performance. The governor demands every state contractor be held accountable for their performance."

The relationship between Northstar and the Illinois Lotterywent south almost immediately after the 10-year contractwas inked in 2010. Though the parties have disagreed on the numbers, by the state's account Northstar — a partnership involving GTech Corp. of Rhode Island, Scientific Games Inc. of New York and Energy/BBDO of Chicago — failed to produce the revenue it promised three years in a row. It didn't help that Lottery Director Michael Jones and Northstar often feuded, perhaps in part because he was part of a competing group that lost the management contract to Northstar.

The proverbial final straw may have come last spring, when reports came out that the firm was running $716 million short of its revenue target nine months into fiscal 2014. That led to a call by state Rep. Jack Franks, D-Marengo, to fire the company — a call Illinois Senate President John Cullerton made, too.

Northstar's spokeswoman has not returned numerous calls requesting comment in the past 24 hours. GTech's spokeswoman declined to comment.

What's next?

What's not clear is how the contract will be unwound and whether the state will resume running the lottery itself or seek a new private operator.

"The state is in the process of finalizing a path that will allow the lottery to move on, improve profits and increase funding for education and economic development across the state," Mr. Klinzman said in his statement.

Mr. Franks said he is "very pleased" at the news. "I think this will be a win for the taxpayer."

Update 1 — Apparently, talks about an agreed divorce have been going on most of the summer, with the state clearly wanting a change and Northstar perhaps fed up with the Illinois situation.

Political pressure for a change certainly has been building and could have become an issue in the race for governor between Mr. Quinn and GOP nominee Bruce Rauner.

"(Northstar) surely have not performed as promised," Mr. Cullerton said. "These guys got a contract by promising certain results. They haven't delivered."

The Senate president was particularly disturbed at the bumpy rollout of Internet lottery play, something he had hoped would produce a windfall for taxpayers by luring new types of bettors. The rollout was "a disaster," in his view.

The question now is what happens if the parties can't agree on a separation deal. My colleague Paul Merrion, who reported on the original deal, says there are exit provisions in the fine print, but it's rather complicated, with who pays whom what depending on a variety of factors.

Update 2— Asked for comment, a spokesman for Republican gubernatorial candidate Bruce Rauner said in an email: "Like his failed anti-violence program that's under criminal investigation, another of Pat Quinn's election-year 2010 decisions is coming undone. It's a shame that it takes another election for him to demand accountability. The people of Illinois should always go ahead of politics."

Crain's Chicago Business

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10 comments. Last comment 2 months ago by Romancandle.
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grwurston's avatar - Lottery-012.jpg
Goal. $1,500 a week.
bel air maryland
United States
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April 24, 2010
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Posted: August 23, 2014, 10:55 pm - IP Logged

The bumpy marriage between the state and the private company that operates the Illinois Lottery is ending in a divorce.

Gov. Pat Quinn's office confirmed to me today that it is ending its contract with Northstar Lottery Group LLC to operate the $2 billion-a-year lottery system, seven years earlier than scheduled.

It is not yet certain whether the separation will be voluntary by both parties, but a decision to end the contract has been made.

"The governor's office has directed the lottery to end its relationship with Northstar," gubernatorial spokesman Grant Klinzman said in an email that he later verified in a brief phone conversation. "The administration has had serious concerns with Northstar's performance. The governor demands every state contractor be held accountable for their performance."

The relationship between Northstar and the Illinois Lotterywent south almost immediately after the 10-year contractwas inked in 2010. Though the parties have disagreed on the numbers, by the state's account Northstar — a partnership involving GTech Corp. of Rhode Island, Scientific Games Inc. of New York and Energy/BBDO of Chicago — failed to produce the revenue it promised three years in a row. It didn't help that Lottery Director Michael Jones and Northstar often feuded, perhaps in part because he was part of a competing group that lost the management contract to Northstar.

The proverbial final straw may have come last spring, when reports came out that the firm was running $716 million short of its revenue target nine months into fiscal 2014. That led to a call by state Rep. Jack Franks, D-Marengo, to fire the company — a call Illinois Senate President John Cullerton made, too.

Northstar's spokeswoman has not returned numerous calls requesting comment in the past 24 hours. GTech's spokeswoman declined to comment.

What's next?

What's not clear is how the contract will be unwound and whether the state will resume running the lottery itself or seek a new private operator.

"The state is in the process of finalizing a path that will allow the lottery to move on, improve profits and increase funding for education and economic development across the state," Mr. Klinzman said in his statement.

Mr. Franks said he is "very pleased" at the news. "I think this will be a win for the taxpayer."

Update 1 — Apparently, talks about an agreed divorce have been going on most of the summer, with the state clearly wanting a change and Northstar perhaps fed up with the Illinois situation.

Political pressure for a change certainly has been building and could have become an issue in the race for governor between Mr. Quinn and GOP nominee Bruce Rauner.

"(Northstar) surely have not performed as promised," Mr. Cullerton said. "These guys got a contract by promising certain results. They haven't delivered."

The Senate president was particularly disturbed at the bumpy rollout of Internet lottery play, something he had hoped would produce a windfall for taxpayers by luring new types of bettors. The rollout was "a disaster," in his view.

The question now is what happens if the parties can't agree on a separation deal. My colleague Paul Merrion, who reported on the original deal, says there are exit provisions in the fine print, but it's rather complicated, with who pays whom what depending on a variety of factors.

Update 2— Asked for comment, a spokesman for Republican gubernatorial candidate Bruce Rauner said in an email: "Like his failed anti-violence program that's under criminal investigation, another of Pat Quinn's election-year 2010 decisions is coming undone. It's a shame that it takes another election for him to demand accountability. The people of Illinois should always go ahead of politics."

IMO  whenever a private company takes over a lottery they always promise increased revenue as the selling point. How does increased revenue happen? Obviously, it is either by selling more tickets, or by paying out less to winners, or a combination of both. But to do that, they have to change the odds, IE. make the games harder to win. And at the same time attract new players. Tough to do both at the same. But if they try to screw the players too much, they will bail out in a hurry.

Unfortunately, they don't want to realize that the more people win, the more players they will attract, which will increase their sales, IE revenue. Let's face it, who wants to play a game that gives you a lousy chance of winning. If the players don't feel they have a fair chance, they're not going to play.

It's just like any other business, you take care of your customers, the customers will take care of you.

"You can observe a lot just by watching."  Yogi Berra, Hall of Fame baseball player.

The numbers will tell you what numbers to play. Pay attention to the numbers.

    Coin Toss's avatar - shape barbed.jpg
    Zeta Reticuli Star System
    United States
    Member #30470
    January 17, 2006
    9109 Posts
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    Posted: August 24, 2014, 12:35 am - IP Logged

    grwurston,

    Very well said. There's no better advertising for the lottery than winners.

    Northstar added a lot of gimmicks to change $1 games into $2 games (player's option) that insulted the player's intelligence.

    Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

    Lep

    There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

      helpmewin's avatar - dandy
      u$a
      United States
      Member #106669
      February 22, 2011
      17481 Posts
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      Posted: August 24, 2014, 8:54 am - IP Logged

      IMO  whenever a private company takes over a lottery they always promise increased revenue as the selling point. How does increased revenue happen? Obviously, it is either by selling more tickets, or by paying out less to winners, or a combination of both. But to do that, they have to change the odds, IE. make the games harder to win. And at the same time attract new players. Tough to do both at the same. But if they try to screw the players too much, they will bail out in a hurry.

      Unfortunately, they don't want to realize that the more people win, the more players they will attract, which will increase their sales, IE revenue. Let's face it, who wants to play a game that gives you a lousy chance of winning. If the players don't feel they have a fair chance, they're not going to play.

      It's just like any other business, you take care of your customers, the customers will take care of you.

      I Agree!

                       

        TnTicketlosers's avatar - Lottery-065.jpg

        United States
        Member #71120
        February 19, 2009
        990 Posts
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        Posted: August 24, 2014, 12:39 pm - IP Logged

        I know I'm not going to win in Tennessee,I won 2 times on pick in 4 years,,not I'm not playing,,,why throw the money out the window so much,sure the kids suppose to get some of that,,,,I'm just sick and tired of losing....

          Romancandle's avatar - moon
          IL
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          Member #136311
          December 8, 2012
          234 Posts
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          Posted: August 24, 2014, 1:40 pm - IP Logged

          grwurston,

          Very well said. There's no better advertising for the lottery than winners.

          Northstar added a lot of gimmicks to change $1 games into $2 games (player's option) that insulted the player's intelligence.

          It would be nice if "we" had a choice in that advertising (aka anonymous).

          Its all about making more money and since most people don't pay attention to the odds (arguably), the state/private corps will continue to squeeze the player anyway they can.

          Look at the profits on scratchers... the ultimate cash cow for state lotteries... those games have a huge advantage for "the house". 

          Even the most shady casino corps would blush at that sort of game and its legal too. LOL

          -RC

            Avatar

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            February 14, 2012
            55 Posts
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            Posted: August 24, 2014, 4:58 pm - IP Logged

            It would be nice if "we" had a choice in that advertising (aka anonymous).

            Its all about making more money and since most people don't pay attention to the odds (arguably), the state/private corps will continue to squeeze the player anyway they can.

            Look at the profits on scratchers... the ultimate cash cow for state lotteries... those games have a huge advantage for "the house". 

            Even the most shady casino corps would blush at that sort of game and its legal too. LOL

            Payout on most draw games is 50-60% whilst payout on instant games is 60-80% and it's far more expensive for a lottery to pay for the production of an instant ticket than a draw game receipt.  The "huge advantage for the house" is on draw games, not instant games.

              Romancandle's avatar - moon
              IL
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              Posted: August 24, 2014, 6:13 pm - IP Logged

              Payout on most draw games is 50-60% whilst payout on instant games is 60-80% and it's far more expensive for a lottery to pay for the production of an instant ticket than a draw game receipt.  The "huge advantage for the house" is on draw games, not instant games.

              Well, I guess I wouldn't know because Illinois does not share lottery financial details or at least I can't find it like you can with a few other states... independent audit reports etc.

              The data I've seen with other states clearly showed that scratchers dominated their profits by a huge margin vs. the draw games.

              The house advantage I was referring to is when they close a scratcher game out with a disproportionate amount of top tier prizes remaining. 

              I understand why and that's a huge disadvantage for the player seeking the big jackpot $ glittering on each ticket.

              -RC

                Avatar
                Kentucky
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                Posted: August 25, 2014, 12:17 am - IP Logged

                The proverbial final straw may have come last spring, when reports came out that the firm was running $716 million short of its revenue target nine months into fiscal 2014.

                Lotteries are cash cows, but if they want to kill the cow, "Revenue targets" will do it every time. Some states actually created legislation that requires their lotteries to meet certain goals even if it means taking a higher cut from the players.

                When some states started discussing outsourcing their lottery games, the question then was how could any group make a profit and still meet quotas and it looks like Illinois found out the hard way.

                  Avatar

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                  Posted: August 26, 2014, 7:47 am - IP Logged

                  Well, I guess I wouldn't know because Illinois does not share lottery financial details or at least I can't find it like you can with a few other states... independent audit reports etc.

                  The data I've seen with other states clearly showed that scratchers dominated their profits by a huge margin vs. the draw games.

                  The house advantage I was referring to is when they close a scratcher game out with a disproportionate amount of top tier prizes remaining. 

                  I understand why and that's a huge disadvantage for the player seeking the big jackpot $ glittering on each ticket.

                  States make more overall dollars on instant tickets, but would prefer if you spent every lottery dollar on draw games.  It's more profitable.

                  "Disproportionate?"  Maybe one top price remaining or, in the event that there is more than one, it's because a game just didn't sell for a long time and no one really paid into the total prize pool in the first place.  I'm not sure from where you are receiving this information, but it's incorrect.

                    Romancandle's avatar - moon
                    IL
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                    Posted: August 26, 2014, 7:16 pm - IP Logged

                    States make more overall dollars on instant tickets, but would prefer if you spent every lottery dollar on draw games.  It's more profitable.

                    "Disproportionate?"  Maybe one top price remaining or, in the event that there is more than one, it's because a game just didn't sell for a long time and no one really paid into the total prize pool in the first place.  I'm not sure from where you are receiving this information, but it's incorrect.

                    Ok Rudd, I'm certainly no expert on this and apparently I'm off the mark here... heck I'd far rather be happy that right any day Smiley

                    Do you have access to the financial record reports, specifically for Illinois since it has been privately managed?

                    If so, please share- thanks

                    -RC