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Illinois Lottery cuts ties with private manager

Dec 10, 2014, 9:11 pm

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The split between the Illinois Lottery and its private manager, Northstar Lottery Group, is now official after three years of acrimony over lower-than-expected revenues.

The termination agreement, signed Tuesday by Gov. Pat Quinn, comes a little more than three months after he directed lottery officials to sever ties with the company after it fell short of promised revenues for the third consecutive year.

At the time, the company had posted record profits to the state, but those figures still totaled nearly a half-billion dollars less than what was pledged to cash-strapped Illinois when the company took over the day-to-day operation of the lottery in July 2011.

"The governor demands every state contractor be held accountable for their performance — and that's why we directed the lottery to end its relationship with Northstar," a spokesman for Quinn's office said Tuesday after the agreement was signed. "Today's formal contract termination concludes that process and will allow the lottery to improve profits and increase funding for education and economic development across Illinois."

The Tribune first reported Northstar's struggle to meet its lofty revenue goals in May 2012, as the company was nearing the end of its first year running the lottery.

Illinois Lottery Director Michael Jones hailed the decision as a win for both sides and said he believes the lessons learned from the controversial bidding process that resulted in Northstar's selection will help the state attract more bidders, not just lottery industry giants like the companies that formed Northstar. He said firms need not have lottery experience in order to bid, because much of the infrastructure is already in place.

"We learned a great deal about this from our experience with the first bidding process, which only attracted a few bidders," Jones said. "This dynamic will invite, I think, a great deal more purpose-built consortium, because previous lottery technical skills aren't required. Terminals and instant tickets are the knives and forks of the lottery business. We're trying to hire a chef."

While Illinois has been the most glaring failure for Northstar — a consortium of lottery firms GTECH and Scientific Games — the company has also come under fire for falling short of promised revenues in New Jersey. And GTECH, which was selected in 2012 to run Indiana's lottery, has also posted slightly less revenue than promised for that state's games.

Northstar officials could not be immediately reached for comment.

Former Chicago Bears safety Gary Fencik, now a private equity manager who chairs the Lottery Control Board, said the lottery and the board told Quinn's office in fall of 2013 that Northstar should be fired. Nevertheless, Fencik says he remains confident that the right private manager can boost revenues to the levels expected from Northstar.

"I believe it was not a vision problem; I believe it was an execution issue," Fencik said. "I think we're going to find out when ... we see the bids whether or not there are other groups that feel they can accomplish the economic goals that were in the last bid. If those revenue targets and profit targets are substantially lower, perhaps that's making a statement about what's achievable in the lottery in Illinois."

As part of the termination deal, all litigation was dropped by Northstar regarding accounting disputes, and both GTECH and Scientific Games will keep their contracts with the state to provide games and services until 2018, when the new private manager can seek bids for new vendors, Jones said.

The provision provoked outrage from Gov.-elect Bruce Rauner's camp, which complained the decision to allow GTECH and Scientific Games to keep their contracts with the lottery was a poor deal for taxpayers.

"Despite our repeated requests, the Quinn administration has executed an eleventh-hour deal," Rauner spokesman Mike Schrimpf said in a written statement. "We were not consulted or even informed. This is a bad deal that creates a new binding contract that will cost taxpayers tens of millions of dollars."

One of the most persistent critics of the move to private management said he hopes the new administration will consider returning the lottery to state control.

"My opinion is that we should hire the talent and keep it in-house," said State Rep. Jack Franks, D-Marengo. "If they feel that we don't have all the tools we need because of our present laws, the lottery folks should tell us, and we can amend the laws as need be. But it's clear the (private management) experiment did not work in our state or any of the other states."

Jones said Northstar will continue to be paid to help run the lottery until a new manager is selected, per the agreement. In the meantime, however, the Illinois Lottery will take control of all major decisions in order "to maximize profits."

Northstar could also be paid up to $12 million by the state to cover the cost of shutting down its operation but will have to provide proof of those costs before it can be reimbursed, Jones said.

Chicago Tribune

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7 comments. Last comment 7 years ago by jerryb*49.
Page 1 of 1
RJOh's avatar - chipmunk
United States
Member #9
March 24, 2001
20272 Posts

Just proves it hard to get  blood from a turnip even with private management.

 * you don't need to buy every combination, just the winning ones * 

Thumbs Up       

    MX20's avatar - Lottery-033.jpg
    United States
    Member #55
    December 16, 2001
    145 Posts

    my co-workers and friends are so glad that they are gone, BYE !!!!!!   BananaHyperDancePartyHurray!Noel

    trust in GOD, but lock your doors

      Coin Toss's avatar - shape barbed.jpg
      Zeta Reticuli Star System
      United States
      Member #30469
      January 17, 2006
      11563 Posts

      Well they're gone but I'm afraid the gimmicks they introduced are here to stay, EZmatch, Fireball, Hit or Miss, Extra Shot, etc.....

      Those who run the lotteries love it when players look for consistency in something that's designed not to have any. So many systems, so many theories, so few jackpot winners. 


      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.

        LottoMetro's avatar - Lottery-024.jpg
        United States
        Member #146338
        September 1, 2013
        1167 Posts

        Well they're gone but I'm afraid the gimmicks they introduced are here to stay, EZmatch, Fireball, Hit or Miss, Extra Shot, etc.....

        Take them away and admit they wasted time and money? Nah LOL

        If the chances of winning the jackpot are so slim, why play when the jackpot is so small? Your chances never change, but the potential payoff does.
        If a crystal ball showed you the future of the rest of your life, and in that future you will never win a jackpot, would you still play?

        P&L % = Total Win($)/Total Wager($) - 1

          Gleno's avatar - Lottery-001.jpg
          New Jersey
          United States
          Member #80352
          September 25, 2009
          723 Posts

          Remember how the lotteries were originally managed by their respective states?

          Now they turn it over to a private company which promises better income to the states ,at a price of course.

          If the private co. does not produce as projected, they risk losing their contract with the state.

          We are all witnessing more games with higher costs per ticket which is supposed to produce more income, however, this  does not always produce the desired effect.


            THRIFTY's avatar - great seal_obverse.jpg
            NEW YORK
            United States
            Member #90531
            April 29, 2010
            12558 Posts

            Just proves it hard to get  blood from a turnip even with private management.

            The lottery needs to increase the payouts in prizes to lottery players instead of fooling around. Lottery players are looking for the best deal for their money.

            US Flag

              United States
              Member #90127
              April 22, 2010
              58 Posts

              So what can a new manager do to increase sales?

              Idea - Maybe the State of ILL could add a line to its income tax form to buy a subscription with a refund (or add it to the amount due).

              Jerry B