Wednesday, September 15, 2010

Quinn chooses familiar firm to run lottery

By Jamey Dunn

Gov. Pat Quinn chose a private firm made up of companies that already work with the Illinois Lottery to manage its efforts for the next 10 years.

Northstar Group represents gaming vendors, Rhode-Island-based GTECH Corp. and New-York-based Scientific Games Inc., along with marketing partner Chicago-Based Energy BBDO. The firm beat out the Camelot Group, which runs the United Kingdom’s lottery.

The Illinois Department Of Revenue and a yet-to-be-named advisory panel recommended Northstar to Quinn because its bid set higher profit goals and lower operation costs than Camelot’s. Quinn accepted the recommendation. The firm will undergo additional a four- to six-week vetting process before the state signs a contract.

Jodie Winnett, acting lottery superintendent, said the state was looking for a firm that can expand the lottery’s customer base in a responsible way, but the top priority is increasing revenue for education and capital construction projects. She said Northstar’s plan was tailored specifically to Illinois, and the groups experience means it can unroll its plan quickly, resulting in a faster profit increase. “The state will benefit from their familiarity.”

According to the Department of Revenue, Northstar pledged to bring in an additional $1.1 billion in profits over the next five years, which is more than $500 million higher than Camelot’s pledge.

If Northstar does not make those goals, it has to pay the state half of the difference between the target and what it makes. The Department of Revenue also projected what the lottery would have made without the help of private firm to run day-to-day operations. If profits fall below those estimates, Northstar would have to repay the entire shortfall. Quinn described the lottery’s current profits as “stable but rather stagnant.”

“From what the lottery officials told us today, if they ran the lottery over the next five years, it would generate $3.3 billion. With a private manager, this first-in-the-nation approach is slated to generate $4.8 billion. The lottery's own statements acknowledge that the private sector can do this better,” Senate President John Cullerton said in a written statement.

Winnett said it is hard to stay on the cutting edge of promotions when dealing with the red tape of government. “To be a nimble responsive marketing organization [as part of a large bureaucracy] is difficult.”

The Division of the Lottery will continue to operate in the Department of Revenue, and current employees will “work alongside” the management firm. Winnett emphasized that the state will still own the lottery and have a say in all decisions. She added that her division and Northstar would hold “monthly meetings as a formal matter, but I am sure it will be every day.”

She said some of the plans moving forward include expanding from 7,500 retailers to 13,000 — including “big box” stores and pharmacies — such as Walmart and CVS. Marketing efforts would also include highlighting projects funded with lottery profits.

Quinn said Northstar is promising profits greater than what the state original projected an independent firm could bring in, which he says "more than make up for any short-term shortfall from video gaming." The controversial capital project revenue source has hit several road bumps, including the state having to scrap a contract for a computer monitoring system that it had previously awarded to Scientific Games after admitting it miscalculated the cost of the bid.

Winnett said Northstar will start a transition period early next year, and its business plan for managing the lottery will kick off at the start of fiscal year 2012 next July.


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