INDIANAPOLIS, Ind. — The Hoosier Lottery board voted Wednesday to hire a private company to oversee sales, marketing and other operations with the goal of earning the state about $2.1 billion in additional revenue through 2028.
The board chose Rhode Island-based GTECH — which provides similar services to the Illinois lottery and provides some computerized game services in Kentucky — at the recommendation of Hoosier Lottery officials, who conducted an expansive review of the two companies vying for the 15-year contract.
GTECH told lottery officials that it can generate $500 million more for Indiana over the next five years than the state had projected to earn without any changes. Currently, the state's lottery revenues significantly trail other states.
"We are not achieving our potential today," Hoosier Lottery Executive Director Karl Browning told the board. "We will under this contract."
Browning said that "under every scenario I can think of," the deal is better for Indiana government and taxpayers.
"And the numbers are big," he said.
Kentucky Lottery Corp. CEO Arch Gleason said his organization has never considered privatizing services as broadly as Indiana has.
He added that the Kentucky lottery's organization as a corporation, rather than an arm of state government, allows for more effective and efficient operation compared to systems in other states.
GTECH plans to grow Indiana lottery revenue by expanding the games to more retail locations, broadening the base of players and creating more games, Browning said. The company also plans to revamp lottery advertising and enhance its brand.
"They have a lot of thoughts about how we spend our advertising dollars today," Browning said.
But Hoosier Lottery Chairman William Zielke said GTECH can't make those changes without an OK from the board, which will review the company's business plan annually.
GTECH has set a threshold amount that it intends to earn for the state, which is roughly 50 percent higher than current profits from the games. If GTECH beats the threshold, it receives a bonus; if it falls short, the company pays the state a penalty.
Lottery officials will now begin negotiating the details of the contract, but the final deal will likely mean that:
- GTECH will take over lottery sales, marketing and distribution. That means GTECH will handle the lottery's relationships with retailers and oversee the creation and administration of state-based lottery games.
- Hoosier Lottery staff will retain control over prize payments, security, finance and legal issues.
- Roughly 125 lottery staff will be offered jobs at GTECH and are to receive comparable salaries and benefits, although they will continue to work out of their current locations. Less than 50 people will remain Hoosier Lottery employees.
Daniels: Decision easy
Hoosier Lottery officials have developed the public-private arrangement carefully to ensure the state doesn't run afoul of a U.S. Department of Justice opinion that states can't simply turn over their entire lottery operation to a private firm.
Gov. Mitch Daniels had considered that more dramatic step several years ago as a way to generate additional revenue for higher education and scholarships. Lawmakers didn't go for the idea and then federal officials nixed such arrangements.
On Wednesday, the governor — who leaves office in three months — said that in his two terms, "this may be the easiest and most obvious decision the state has had to make."
"Our lottery revenues lag far behind most states," he said. "With this contract, the only question is how much more money Indiana will receive than under the current system."
Daniels, whose administration has completed a number of controversial privatization deals, emphasized that 88 percent of the lottery's spending already is done through contracts with private firms. Retailers, for example, sell the tickets and outside firms are used to print and distribute them.
The new deal will move that number to 95 percent and "assures significantly stronger future net income," he said.
"It's no longer my job to suggest how these additional state fundsshould be used, but it is my job to leave Indiana in the strongest possible financial shape, and this step will make the nation's most solid state fiscal position that much stronger," Daniels said.
Other states' actions
Since the Department of Justice's ruling, other states have also been exploring how to privatize parts of their lottery operations.
Last year, Illinois become the first state to act. It hired Northstar Lottery Group — a collaboration between GTECH and Scientific Games — to run some of its marketing and sales operations. In its first under the new arrangement, the Illinois lottery's revenue improved by roughly $100 million, but the numbers were also short of Northstar's original projections by about $100 million.
That state and Northstar are now in arbitration over the revenue issues and possible penalties and the company is trying to reduce the profit commitment it made to the state when it won the bid.
Browning told the Hoosier Lottery board on Wednesday that the review team considered the Illinois issues as it studied GTECH's bid. But he said regardless of what Northstar promised Illinois, it did deliver additional revenue.
"The people of Illinois are $100 million richer than they were," Browning said. "If you think that's a problem, I'd like to have that problem."
The Kentucky Lottery contracts with GTECH to provide services for "online" games — such as Pick 3 and Powerball — and with another private firm for services related to scratch-off tickets. [Editor: The term "online" in the lottery industry refers to games with tickets that are printed at a retailer's lottery terminal — it does not mean tickets are available over the Internet, nor does it refer to the type of drawings (i.e., traditional ball drawings or computerized drawings) that are conducted for the game.]
Those contracts include incentives to improve sales, Gleason said.
The Kentucky lottery reported $823.5 million in sales in fiscal year 2012, a 2 percent increase over 2011.
"I am convinced that we have one of the best run lotteries in the nation," said Rep. Mike Cherry, a Princeton Democrat who chairs the House Committee on State Government.
Scientific Games was the losing bidder in Indiana. Officials from the company attended Wednesday's board meeting but declined to comment after the decision.
IND needs to give back!!!!!!!!!!!!!!!!!!!!!!!!!
The Kentucky Lottery contracts with GTECH to provide computerized lottery games such as Pick3 and Powerball...
Computerized games. That's just GREAT.
Gtech is also converting ice-cream trucks into mobile lottery machines. You will be able to buy tickets at birthday partys, weddings, and red lights. Keep us updated in a year.
They have vending machine to sell lottery tickets in many shoppong centers too.
They should also make available, vending machines which dispense lottery clerks, without the attitude or patel disposition.
This is good for Indiana... Definitely it will bring them more income and people there will play great...
They also do pre-draws!!
Hey grwurston - this is Chip Polston with the KY Lottery. I wanted to clarify the "computerized games" reference in this story. I sat in on the interview yesterday between the reporter and our president and CEO. There was some confusion as to what was meant by that - draw games used to be called online games, and they were given this term before the advent of the Internet (and thus the phrase online took on a whole different meaning). The reference to computer means the tickets are printed from a centralized computer - it does NOT refer to RNG. Both of these games are still drawn the old-fashioned way with balls and machines. Feel free to check out our new draw site that is linked to our main website and you can see our Pick 3 and Pick 4 midday and evening drawings there. Let me know if you have any other questions - thanks!
I noticed you didn't address my post about pre-draws???
I have edited the story just a bit to replace the term "computerized" and insert a note that should clear things up.
Thanks Todd.
Hey CARBOB - I didn't address it because I never saw it. What's up?
Will the lottery be conducting pre-draws?? If yes, how many?
Chip,
Thanks for clearing that up. Us lottery players do not like computerized drawings.
Yes - we've always done pre-test drawings. We do five per game before the official drawing. Let me know if you need any more info.
Why so many? Do you publish the predraw results? If so, where and when? Any chance of getting the rest of the states to
publish them also? (Texas does). Preferably before the drawings in time for the players to see what they were. After all,
you do want the players to win as much as possible right?
Of Course he'd be out of a job, but the players would be very happy. Isn't that what really counts?
Should this be taken to mean that the "centralized computer" does not make use of RNG, but rather systematically uses up all the number combinations for a given game??
If so does it just start over once it uses all the combinations available??
I don't see why not. It would be good publicity. Besides, if more people win, then more will play.
Hey grwurston. The industry standard for test draws is between three and five test draws per game. That's how we've done it since 1989. If the same number comes up either four or five times during the pre-test draws we do a retest as statistically that shouldn't happen. If the same number continues to come up we pull that draw set and have it inspected to make sure nothing has happened to it. The results of the test draws are always available by request, but aren't published. There's no time to put them up prior to a drawing.
And as for wanting players to win as much as possible? The answer there quite honestly is yes. Do we want people to win more than we sell? Of course not -then we're out of business and no one gets to play. On the flip side though, if no one wins or not enough people win then we're also out of business as no one is going to play. It's a fine line. But you hit the nail on the head with your post above - our business is based on creating winners, and I see a steady stream of them walking out of our lobby, grinning ear to ear and holding a little blue envelope with a check!
Hi ChipP 2,
Are all lottery workers banned from playing the lottery they work for or is it just the high level folks ?
I work in a hotel casino and there was a time when licensed workers were banned from playing in any casino in atlantic city,
now I can play, but not at the one I work for.
Hey there Haymaker. Not only are all Kentucky Lottery employees prohibited from buying tickets in Kentucky, but so are members of our board of directors and all employees of lottery-specific vendors that we do business with (like GTECH who provides our draw game system, Scientific Games who prints our scratch-off tickets, etc.) The only caveat is with the Powerball game, and we're allowed to play that but ONLY out of state. Mega Millions does not provide that option.
Just being devils advocate here Chip, but I'm sure there are ways around those rules.
Nothing to prevent you from buying lottery tickets, or having a friend pick one up for you.
The only problem would be cashing in a large winner or jackpot. In that case you could entrust that winning ticket to a friend to claim.
Unethical, but I'm sure its all been done before many times, if not your state, the other 49.
Thanks again for all your informative posts, always good to get the lottery's prospective on our everyday issues.
Hey Chip,
Interesting comment about doing a retest and pulling the ballset if a number comes up 4 or 5 times in a row.
Statistically it should not happen you say, but it does quite often. Two recent examples in official draws, 9/28 thru 10/1 the 9
appeared in Md eve. (4 times). 10/2 thru 10/6 the 9 appeared in Md. mid. (5 times). Just since Sept. 1, a number appeared
4 in a row or better, 11 times in the Md. pick 4. On the flip side what about when a number doesn't hit for 12, 15 or
more days. What happens then?
Now if you see that on the pretest (# hitting several times in a row) and you pull the set and inspect it, if nothing is wrong
do you go right back to using that set? Another question, if you know numbers can and do hit several times in a row on
the official draws, why does it arouse suspision when it happens on the pretests? If it happens on the pretest and you pull
the ballset, aren't you in effect trying to control the drawings by trying to prevent something that should be completely
random from repeating?
Thanks for the reply,
so I guess if you want to play PB that means a trip to indiana ?
What happened to Chip, I guess he doesn't want to answer our questions???
Good question, I asked him a question over two weeks ago. Still no reply.
Business must be really good, guess we "little" people don't matter to him any more.
how about Owning Homes in different states - Twice the Fun