Illinois' private lottery manager takes over operations Friday, with both the company and the state envisioning greatly increased sales and more money for state coffers.
Although Northstar Lottery Group formally assumes the reins July 1, the transition to private management has been under way for some time. Regular players have seen new signage and the rollout of new games in recent weeks, but otherwise shouldn't notice a difference if they buy lottery tickets after the first of the month.
Northstar management, though, said they are focusing on bringing new people to play the lottery, the occasional player to play more often and the former player to try again.
"They will see there's a new energy, a new excitement, a new dynamic happening, which is really epitomized by a new logo which is much brighter, funner and more approachable," said Northstar CEO Connie Laverty O'Connor. "We're trying to make sure we will generate momentum that will generate more revenues."
Top 10 in profits?
Northstar is a consortium of three companies that held contracts with the lottery before the decision to privatize management, including Gtech, Energy BBDO and Scientific Games. Although the lottery will be privately managed, the state retains ownership and ultimate control over it.
Northstar will be paid a flat management fee of $15 million a year. Above that, the company will get a percentage of lottery profits it produces above $650 million, said Mike Klemens, spokesman for the Department of Revenue. Lottery profit that is used to support education funding is the amount the state gets, after prize payouts and operating expenses.
Over the next five years, O'Connor said, the company expects to increase those profits to between $750 million and $1 billion. The plan is to have Illinois place in the top 10 in profits among states that have lotteries. Right now, Illinois ranks 18th, O'Connor said.
Exactly the point, said Rep. Jack Franks, D-Marengo, a critic of the management deal.
"The only reason the state is going to a private manager was the Lottery Department under Revenue was not providing us a decent rate of return," Franks said. "If we had run the lottery like other states run them, Georgia or Massachusetts, we'd have $500 million or $2 billion more. Why not just hire the guys who run the Massachusetts lottery?"
More instant games
To increase profits, Northstar will focus on instant games where players buy tickets and scratch off emblems to see if they've won. Games like Lotto and Pick 3 and Pick 4 generate higher profit levels, but instant games generally account for more sales, O'Connor said. In Illinois, instant tickets account for about 53 percent of sales and 34 percent of profits, she said. In other states, instant tickets can account for 70 percent of sales and over half of profits, she said.
"There is a great opportunity here for growth," she said.
Northstar has already taken steps on that front, introducing a group of games in April where players can win guaranteed payments for life. For example, a $1 ticket could bring a winner $500 a week for life.
"We have set instant-game revenue records over the last few months," O'Connor said.
"We knew that players played games with million-dollar jackpots," said Jessica Powell, Northstar's vice president of marketing and advertising. "To some players, especially new players, they don't feel like they have a chance of winning that game. Win $500 a week for the rest of your life, that is a proposition that players can understand."
Northstar is also restructuring some prizes to "put more money into meaningful prizes that the consumer will feel better about," O'Connor said. "Some prizes are all at the top or the bottom, but not much in the middle. When you have a prize structure that delivers $20 to $200, people feel like they are more special. It's more important to win those prizes, even if you don't win as often."
More outlets, too
Northstar plans to add hundreds of new outlets where people can purchase lottery tickets, anticipating that more outlets will lead to more sales. In the last three months, O'Connor said, more than 1,000 applications have been filed by businesses interested in selling lottery tickets. So far, more than 400 of those applications have been approved by the state.
Recruiting retailers may be helped by a new agreement allowing them to be paid 1 percent of the price for cashing a winning ticket. Currently, retailers get a 5 percent commission on sales and 1 percent on prizes over $1,000, Klemens said. The new agreement covers prizes below that amount.
O'Connor said Northstar is in talks with Walgreen's and CVS about selling lottery tickets on a trial basis. The biggest potential growth region for sales is suburban Chicago, she added, which is densely populated but where sales performance "is nowhere near where it should be."
In Springfield, Northstar is leasing space in the 3200 block of Robbins Road for offices and a data center. O'Connor said the company has hired 70 employees, including five who used to work for the state.
The agreement to hire a private manager stipulated that state employees working for the lottery when it was managed by the state would not lose their jobs. Klemens said about 80 state workers, primarily in the lottery sales force, are now under Northstar management. Another 30 employees who work in licensing and finance remain under state supervision, he said.