Wednesday, January 19, 2011

State reaches deal on private lottery management

By Jamey Dunn

Illinois will hand over the reins of its lottery to a private firm next summer.

The state finalized its agreement let Northstar Lottery Group manage the Illinois Lottery for the next 10 years in return for the promise of more revenue. According to the Division of the Lottery, which operates under the Illinois Department of Revenue, Northstar plans to grow profits by about 10 percent over the next five years.

Northstar Group represents gaming vendors that have previously contracted with Illinois -- Rhode-Island-based GTECH Corp. and New-York-based Scientific Games Inc., along with marketing partner Chicago-Based Energy BBDO.

Northstar’s pledge to increase revenues by $1.1 billion over the next five years topped the proposal by the United Kingdom's lottery manager, the Camelot Group, by more than $500 million. “The state will benefit from [Northstar’s] familiarity,” Jodie Winnett, acting lottery superintendent, said when Gov. Pat Quinn announced the winner of the contract.

Camelot protested the decision, saying the state gave Northstar advantages in the bidding process because, in part, of the firm’s previous relationship with Illinois. The state denied protests from Camelot and the other failed bidder, Intralot S.A, a Greek firm.

If Northstar cannot reach its profit goal, it will have to pay the state half of its projections. It the firm cannot reach the numbers that the state estimates the Division of the Lottery could have achieved on its own, the firm must pay the entire difference. New revenues will go, in part, to help fund the state's capital construction plan, approved by the General Assembly in May, 2009. Plans to privatize the lottery and since-stalled efforts to sell lottery tickets online and allow video poker in bars restaurants across the state were all part of the original funding for new construction in Illinois.

Susan Hofer, a spokesperson for the Illinois Lottery, said Northstar has not changed its business plan from the original proposal pitched to the state last September.

According to the proposal, the firm plans to expand into so-called big-box stores, such as Walmart.

Hofer said the group is “using this time to gear up, so that they can hit the ground” at the beginning of Fiscal Year 2012 — when they are set to take over management in July.

“The lottery office at the Department of Revenue will do the state’s portion,” Hofer said. She said if lottery sales are expanded, it will be up to the state to investigate new vendors. The lottery division would also continue to investigate any alleged violations or fraud associated with lottery ticket sales.

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