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Illinois Lottery private manager still on job after firing

Mar 28, 2017, 4:21 pm

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Finding a new lottery manager proves tricky for state government

CHICAGO, Ill. — When Illinois lawmakers voted in 2009 to hire a private company to run the state's $2 billion-a-year lottery, they had high hopes of making more money that could be funneled into education and construction projects.

Then the company missed sales goals, and two governors tried to fire Northstar Lottery Group. But Northstar remains on the job more than two years later, and the firm is now able to collect millions of dollars more in fees than under its original contract, an Associated Press review found.

"It shouldn't be this hard to fire somebody," said former state Rep. Jack Franks, a Democrat who opposed the private management system and wants the state to resume running the lottery.

Republican Gov. Bruce Rauner's administration said the delay reflects the challenges Illinois and other states have faced since turning some lottery operations over to the private sector. Indiana and New Jersey also hired private managers after Illinois in 2010 became the first state to do so. All three states have lowered revenue projections or restructured contracts because of disappointing sales.

A replacement firm for Illinois was supposed to have been hired by Jan. 1 under a termination agreement negotiated by Rauner in 2015 — roughly one year after his predecessor, Democratic Gov. Pat Quinn, tried to end the contract.

But a new manager has yet to be hired. Instead, Illinois has extended Northstar's contract once and is working on another extension that could keep the company in place through 2017. Just one company submitted a bid to replace Northstar.

Lottery spokesman Jason Schaumburg said the transition — including ensuring there's no disruption at the roughly 8,000 locations where lottery tickets are sold — is complicated.

"While getting a new manager in place in a timely manner is of great importance to the state, our priority is to ensure we are getting the best deal for taxpayers and that the new manager performs at a level taxpayers deserve," Schaumburg said.

Meanwhile, under the termination agreement Rauner's office negotiated with Northstar, the company may receive up to $17 million per year in "disentanglement fees" in addition to management fees of up to $14 million annually.

Unlike under the original contract, which paid a flat management fee of roughly $14 million, the payments reflect actual costs as determined by a third-party auditor. In the fiscal year that ended July 1, the company was paid a combined total of $13.5 million in fees.

Also, after making a final $10 million payment for missing revenue expectations, Northstar no longer has to pay additional penalties as it did under its original contract.

The Rauner administration says the agreement remains a better deal than what Quinn negotiated.

Critics cite the situation as further evidence that Illinois never should have hired a private manager. They say the costs associated with the decision are particularly troubling given Illinois' massive financial problems. Illinois has more than $12 billion in unpaid bills, and funding for social services, higher education and other programs has been slashed because lawmakers have gone two years without passing a budget.

When they voted to privatize the lottery, lawmakers said annual contributions to the state schools fund would increase each year. Additional proceeds were to go toward a plan that would build roads, schools and other public projects.

After initially reporting record sales, Northstar fell far short of its goals in subsequent years. The company and the state went to arbitration following a disagreement over its revenue goals and how performance was calculated.

Company officials, while acknowledging some shortcomings, argued that the state made Northstar's job more difficult, including canceling games it wanted to launch.

Quinn moved to end Northstar's 10-year contract in 2014, after the lottery recorded its first loss in a decade. Rauner — a businessman making his first bid for office — made the handling of the lottery an issue in their bruising campaign for governor.

Attorney General Lisa Madigan blocked Quinn's termination agreement in January 2015, saying it could obligate the state to pay more fees and expenses than in prior years.

Nine months later, Rauner's new lottery director announced another agreement, calling it "a new day for the Illinois Lottery" and a better deal for taxpayers. The agreement assumed a transition period in which Northstar would continue to work alongside the new manager.

However, a request for proposals formally seeking a new manager was not issued until July 2016 — 10 months after the second termination agreement was signed. The only firm that submitted a bid was Camelot, which runs the British lottery and was among the companies that bid for the original Illinois contract.

Lottery sales have remained essentially flat in recent years. The lottery saw its second smallest increase in sales since 2003 in the fiscal year that ended June 30, according to a legislative report that cited preliminary, unaudited numbers.

In that same fiscal year, the lottery transferred $691.6 million to the school fund. No money was transferred to the capital fund "due to poor overall results by the lottery," the report from the state Commission on Government Forecasting and Accountability stated.

Those have not been the only troubles. Last month, a group of lottery players sued Northstar after a Chicago Tribune investigation found that the lottery did not award many of the biggest prizes in some of its largest scratch-off, instant games.

AP, Lottery Post Staff

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7 comments. Last comment 3 years ago by zephbe.
Page 1 of 1
uprrman's avatar - nw bookeep.jpg
harvard,il
United States
Member #96752
September 4, 2010
4080 Posts
Offline
Posted: March 28, 2017, 6:23 pm - IP Logged

ill. lottery is crooked and so are all the politicians.

i want to be a millionaire a second time!

    Avatar
    USA
    United States
    Member #58394
    February 13, 2008
    351 Posts
    Offline
    Posted: March 28, 2017, 7:11 pm - IP Logged

    Yes they are. We need someone to drain the swamp!

      lejardin's avatar - Lottery-014.jpg

      United States
      Member #118605
      November 4, 2011
      1423 Posts
      Offline
      Posted: March 28, 2017, 7:28 pm - IP Logged

      Lottery spokesman Jason Schaumburg said the transition — including ensuring there's no disruption at the roughly 8,000 locations where lottery tickets are sold — is complicated. 

      I guess I am stupid but what is complicated?  You're fired, you are gone.  PERIOD.  I never heard of keeping someone on after they have been fired.  Incompetent crooks come to mind.

        haymaker's avatar - Lottery-012.jpg
        Egg Harbor twp.south Jersey shore
        United States
        Member #112964
        June 29, 2011
        4135 Posts
        Offline
        Posted: March 28, 2017, 8:14 pm - IP Logged

        Looks like Northstar has better contract lawyers than the states do !

        Extraordinary Popular Delusions & the Madness of Crowds    -- Charles Mackay  LL.D.

          Groppo's avatar - cat anm.gif

          United States
          Member #162626
          January 7, 2015
          778 Posts
          Offline
          Posted: March 28, 2017, 8:28 pm - IP Logged

          Lottery spokesman Jason Schaumburg said the transition — including ensuring there's no disruption at the roughly 8,000 locations where lottery tickets are sold — is complicated. 

          I guess I am stupid but what is complicated?  You're fired, you are gone.  PERIOD.  I never heard of keeping someone on after they have been fired.  Incompetent crooks come to mind.

          .

          No, you are not stupid. I agree 100%.

          For, I have been fired a time or two, for various things. No, it was never for anything like theft of property or assault, but once you're gone, you're gone.

          I too never heard of anyone being fired and hired again.

          (or so I thought)

          • Don't chase the numbers you play.
          • Play only numbers you've already played, plus however many random picks.
          • But, ALWAYS the regular numbers you play.  This will make you a winner, not a chaser.
                     (so far, though, I've yet to win any significant lotto prize)
          • Oh, but always know where your tickets are, as well as your ticket's deadline.
            Groppo's avatar - cat anm.gif

            United States
            Member #162626
            January 7, 2015
            778 Posts
            Offline
            Posted: March 28, 2017, 8:47 pm - IP Logged

            To:  ALL LOTTERY ASSOCIATIONS

            I don't know who may be doing things illegally, but I urge you to take note of the comments on here (lotterypost.com). 

            Many of the articles and responses to them, reach well above my head.

            All I've ever wanted from any lotto I play is to win a bit of money, so I can move to the West Coast. I might be able to do it with a half million.  I don't know.

            Though I spend quite a bit, I don't dump huge amounts into the game. I've spent money for years, trying to win enough to liberate me from the East Coast, where the weather sucks (that's not all, though).

            So, to come here and read questionable things about the people/businesses/contractors involved in questionable acts is very hard on players.   I imagine that some/many/all of the "higher ups" may be immune.  I'm just a poor guy, hoping to win something, that I've faithfully stuck to, for years. 

            To read about "fraud" and such things is devastating.

            You 'associations' need to clean up the whole act.  I mean I should never have to read about anything questionable, related to state run lotto games.

            Mechanize the doggone process, so that I don't have to read about this or that Governor suing this or that entity.  I don't want to know.  It irritates me as I  shouldn't have to worry about any of that.  Isn't the gov't involved?  Only the IRS?
            Well maybe more departments should be involved.

            • Don't chase the numbers you play.
            • Play only numbers you've already played, plus however many random picks.
            • But, ALWAYS the regular numbers you play.  This will make you a winner, not a chaser.
                       (so far, though, I've yet to win any significant lotto prize)
            • Oh, but always know where your tickets are, as well as your ticket's deadline.
              zephbe's avatar - animal butterfly.jpg
              South Carolina
              United States
              Member #77165
              July 15, 2009
              897 Posts
              Offline
              Posted: March 29, 2017, 2:11 am - IP Logged

              Maybe IL can't find another company who wants to work with them.  So they had no choice but to stick with the last company.

              Every champion was once a contender who refused to give up.-Rocky Balboa

              “Don’t let someone who gave up on their dreams talk you out of going after yours.” – Zig Ziglar