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Details of new Illinois Lottery manager deal kept secret

Oct 4, 2017, 9:01 am

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Illinois LotteryIllinois Lottery: Details of new Illinois Lottery manager deal kept secretRating:

As the Illinois Lottery edges closer to finalizing a massive deal with a new private manager, the state and the firm have chosen to keep many of the details secret despite past pledges of transparency.

The deal includes a tiered incentive system in which the new firm, Camelot Illinois, would be paid bonuses for exceeding various profit levels, documents show. But the proposed dollar amounts are not included.

That was among the few bits of information in the heavily redacted records the state released as part of the vetting process that gives the public until Friday to protest the contract. After Friday, the state can go ahead with final negotiations.

The lack of detail frustrated some lawmakers, who questioned how the public could evaluate the deal without more information.

"I think it's an outrageous process because nobody can tell me and nobody can tell the taxpayers that this is a good deal based on any type of metrics," said Rep. David McSweeney, R-Barrington Hills.

Rep. Lou Lang, D-Skokie, also questioned why more details have not been made available for public review.

"It is a significant issue that requires much analysis," he said in an email response to the Tribune. "This analysis cannot be properly accomplished without all of the information and data."

Camelot asked the Illinois Lottery to keep secret vast portions of its proposal, which the state has done despite repeatedly pitching a vetting process it said would be transparent for selecting a firm to run an operation that last year brought in more than $700 million in profit to the state.

The details could have significant consequences for cash-strapped Illinois, where the previous private manager won the lottery contract in a process criticized by state auditors. The Tribune later found the lottery — under private management — engaged in questionable practices of ending scratch-off games before all, or sometimes any, life-changing prizes were claimed.

On Sept. 22, the lottery announced Camelot Illinois — part of a family of companies that run the national lotteries in the U.K. and Ireland — would replace Illinois' current private manager, Northstar Lottery Group.

As part of the announcement, the state began a 14-day period required by law to allow anyone to protest Camelot's bid. Seven days into the protest period, the state released hundreds of pages of records of the bid and the state's review of it.

Large passages of the documents have been redacted at Camelot's request, particularly in sections dealing with how the company will be paid, whether it will face penalties if it does not meet profit goals and how it will provide increased transparency to the state and taxpayers. One section of Camelot's proposal titled "Evidence of Ability to Satisfy the Transparency and Integrity Plan" is entirely redacted except for the title.

Camelot defended its redactions, saying the firm has spent millions of dollars on its effort to win the contract in Illinois and releasing all the information in the bid would provide competitors a window into the company's proprietary information.

"As we have not finalized a contract with the state, we can't discuss details of a potential agreement. In bidding to partner with the Illinois Lottery to generate record sales and responsible growth, we submitted strategies that included confidential commercial information," the company said in a written response to questions from the Tribune. "Disclosing those details today would put our $10 million investment at risk. Such information is allowed to be redacted by law in Illinois and other jurisdictions."

The state also redacted the names of the individuals who evaluated the bid.

Lottery spokesman Jason Schaumburg said the lottery's redactions were in compliance with state law and the protest period is designed to allow the public to lodge a complaint about the way the state sought bids, evaluated them and awarded the contract.

McSweeney said the company and the lottery should at least provide information on what the company could earn in incentives based on its revenue projections.

"I don't understand why that's a competitive secret," McSweeney said. "I don't understand why that isn't being disclosed."

The lottery cautioned that nothing is final until the state completes negotiations and the contract is signed.

Even if the details are released after the contract is signed, lawmakers would have little recourse to change it.

"If they sign a contract, it's very, very difficult to terminate them," McSweeney said. "I don't understand why this isn't all transparent now. There should be an extra standard for transparency when there's only one bidder."

The selection of Camelot comes nearly three years after Northstar Lottery Group was fired by then-Gov. Pat Quinn in late 2014, and then fired a second time in a renegotiated termination deal by Gov. Bruce Rauner in 2015.

Northstar, a company formed by Scientific Games and IGT — two longtime vendors to the Illinois Lottery — was hired by the state in 2010 and became the first private company to manage a U.S. state lottery. Northstar's bid edged out Camelot on the strength of its commitment to bring nearly 15 percent higher revenues to Illinois than the U.K.-based firm offered.

While Northstar did bring record sales and profits, the relationship between Northstar and the state soon soured as the firm fell short of its lofty profit goals, prompting finger pointing between lottery officials and Northstar over who was to blame.

For Camelot, the state has proposed a set-up similar to the one it inked with Northstar. Under that deal, Northstar received a basic management allowance, but profits had to reach a certain level before Northstar got any bonus. After that, Northstar received a bigger percentage of the profits the higher profits rose.

Camelot proposes it be paid 15 percent of the profit it makes beyond the "guaranteed" level to a second level, then 20 percent of the profit from that second level to a third level, and then 25 percent of profit beyond that third level. But Camelot asked the state to not release the dollar amounts of those levels.

If those levels are set artificially low, it could mean more money for Camelot and less for the state.

Camelot, in an unredacted portion of its proposal, told the state it believed its proposal was fair, and the biggest bonus level would kick in only if it exceeded the profit levels it projected in its detailed business plan. That business plan, which typically contains details on how a firm expects to make its money, was also kept secret from the public.

Camelot has said it plans to undo one of the more controversial aspects of the Northstar arrangement: conflicts of interest. Northstar used its parent companies, two of the lottery's biggest and oldest vendors, to provide games and services, sparking complaints from the lottery that Northstar paid those vendors high fees.

The new arrangement bans such conflicts, and Camelot said it believes it can save $6.1 million a year by competitively bidding work done by subcontractors.

Chicago Tribune

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7 comments. Last comment 3 years ago by Illinoisdreamer.
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Wyomissing, PA
United States
Member #161045
November 15, 2014
481 Posts
Offline

Instant tickets comprise the bulk of revenue for most lotteries now. There's lots of discussion of lottery drawings, balls verses RNG, etc. However, there's very little information regarding instant ticket vendors, how they're paid (often paid a percentage; potential conflict of interest), how tickets are distributed, top prize allocations, game closing procedures, etc.

In short, instant tickets is where a lottery can easily abuse the player and get away with it. I'd love to see Todd and/or others do some in-depth articles regarding this.

A for-profit management company that can be penalized heavily for missing sales targets could easily cover the gap, likely legally too, by altering how instant top prizes are distributed. To compound matters, the company may also be paid an increasing percentage of profits above various levels. Another incentive to cheat the player.

In addition to the obvious ways, I suspect one of the tactics of getting around the problem of too many top instant prizes potentially being found too soon is to "reorder" more tickets for the game. Then sometime afterwards, pull the game while some top prizes still remain. Easy to publicly justify, since the game was already out for awhile. PA Lottery just "reordered" Gold Fish. Seems suspicious to me.

As for lotteries with Fast Play, wow, that's got abuse written all over it. One might assume Fast Play is like playing a typical slot machine with all prizes being potentially available at the time one plays. However, Fast Play tickets are often akin to instant tickets, such as in Pennsylvania. At many times, the odds of the next ticket coming out of the dispenser being a top prize winner could effectively be zero. The tickets are all predetermined with prizes being seeded in just like physical instant tickets.

Rambling on, but lack of transparency with instant tickets is appalling. Heck. many lotteries don't even publish odd charts and one is left guessing. I'd wager if one took the time to investigate instant tickets they'd find abuse, likely running into the hundreds of millions combined across all U.S. lotteries, that rivals that of lottery draw games.

As for Illinois players, as I wrote in a previous post, take a look at National Lottery U.K. That's likely the future. Maybe it will be better and work out for players, but highly doubt it. Illinois players may do better to stick with draw games, which are more transparent in how they operate; less incentive for lotteries to rig them.

    Todd's avatar - Cylon 200.jpg
    50
    Chief Bottle Washer
    New Jersey
    United States
    Member #1
    May 31, 2000
    25839 Posts
    Online

    There have actually been a bunch of news stories posted here dealing with scratch game controversies in Illinois.  Check the bottom of this recent news story.  The last sentence or two contain multiple links to various news stories you might be interested to read.

     

    Check the State Lottery Report Card
    What grade did your lottery earn?

     

    Sign the Petition for True Lottery Drawings
    Help eliminate computerized drawings!

      haymaker's avatar - Lottery-012.jpg
      Egg Harbor twp.south Jersey shore
      United States
      Member #112964
      June 29, 2011
      4135 Posts
      Offline

      This stinks so bad I can smell it all the way to Jersey...where corruption is...well...we have a Senator on trial now !

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

        Avatar
        Jacksonville
        United States
        Member #153801
        March 26, 2014
        770 Posts
        Offline

        I think the players are going to have the same problems that existed with Northstar.  The more ways the state and vendors have to share profits, the lower the prize pool for players.  Glad I don't buy tickets there.

          Avatar
          Northern California
          United States
          Member #19947
          August 9, 2005
          153 Posts
          Offline

          I don't think shafting the players would be part of anyone's plan to maximize "profits" on lottery sales.  Players are the lifeblood - the more prizes you pay them, the more they turn around and give you the $$$ back. That is well-proven in the industry.

           

          I wonder if anyone has analyzed the impact on sales from the Lottery not being able to pay prizes because of the State's budget woes...

           

          And when we talk about "profits" those are divied up AFTER things like prize expenses are paid.

            Avatar
            New Member

            United States
            Member #177108
            September 9, 2016
            17 Posts
            Offline

            Instant tickets may be the bulk of revenue, but, they are hardly the money maker profit wise to the states.  Payouts are a much higher percentage then draw games.  I guess that is why the stress on profit and not revenue.

              Avatar
              Northern IL
              United States
              Member #171103
              December 31, 2015
              147 Posts
              Offline

              I don't think shafting the players would be part of anyone's plan to maximize "profits" on lottery sales.  Players are the lifeblood - the more prizes you pay them, the more they turn around and give you the $$$ back. That is well-proven in the industry.

               

              I wonder if anyone has analyzed the impact on sales from the Lottery not being able to pay prizes because of the State's budget woes...

               

              And when we talk about "profits" those are divied up AFTER things like prize expenses are paid.

              Are you not familiar with Northstar payout scandal? That has had more negative impact on game then budget issues


              And with budget in place for next two years that wont be issue at least to players anytime soon. Its rebuilding credibility of lotto after Northstar prize fiasco that should be priority for Illinois and Camelot going forward

              Hopefully Camelot has some good idea's and doesn't come in and simply raise prices on games and make them harder to win which is what I fear after looking at the god awful UK lotto

              Players were more pissed by the fact so many grand prizes were never paid out on instant games then budget fiasco in my area. Scratch off players are hardcore players and it is rotten feeling to play game and find out that the big grand prize was never real