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.