Double down on outside lottery management

Staff Writer
Chillicothe Times-Bulletin

That the state of Illinois last week severed its contract with the private company it hired to run the Illinois Lottery should come as no surprise.

The writing was on the wall for months, as Northstar Lottery Group continued to struggle to meet promised sales projections and lawmakers became more rankled about the shortfalls.

State officials haven’t revealed yet what they intend to do now — outsource lottery management to another firm or go back to running it in-house. Sticking with an outside manager appears to be the way to go, based on Northstar’s lower-than-expected but better-than-before revenues.

Illinois’ 10-year management contract with Northstar was the first of its kind in the nation when the company took over the lottery on July 1, 2011. Northstar is a partnership between GTECH and Scientific Games, two companies that already were contractors with the Illinois Lottery, prompting criticism early on.

But since it began managing the lottery, Northstar failed to meet promised sales targets. Earlier this month, it was reported that Northstar failed to meet its target of $242 million in profit during the 2014 fiscal year. In all, according to the Chicago Tribune, Northstar has fallen about $480 million short since it took over the lottery three years ago.

“Northstar wanted to be here in 2010, and we want to be here now,” Northstar CEO Tim Simonson told The State Journal-Register editorial board July 8, not long after Senate President John Cullerton said he was “extremely disappointed” in Northstar’s performance and urged Gov. Pat Quinn to “hold the firm accountable and take whatever steps are necessary.”

Simonson said Northstar’s challenges included the state’s business environment, in which independent businesses selling lottery tickets have closed their doors as fast as new retailers could be signed up; increased competition for consumers’ dollars at convenience stores, where the prices of gasoline, tobacco and liquor went up; and heavy oversight by the state, which stymied Northstar’s ability to introduce new games, such as a national Monopoly game, to entice players and sell more tickets.

“If the department is going to say, ‘No, you can’t launch this game,’ we respect that, but it means you can’t hold us accountable for the full market potential because that is premised on the most exciting game we can launch,” Simonson said.

Two things are important here. One, Northstar failed to make good on its promises — some might call them overpromises — but it still did a better job of making money off the lottery than the state had been doing. At the time Northstar began managing the lottery, the state had nearly stagnant growth in sales — about 3 percent annually. Under Northstar, sales went up by about 12 percent a year.

Two, if the state hires another contractor to manage the lottery, it must be willing to accept some responsibility for how its oversight may affect sales targets.

In the state’s defense, a 2008 U.S. Department of Justice ruling requires states to “exercise actual control over all significant business decisions made by the lottery enterprise,” even if its operations are privatized.

But those controls may very well be stifling the energy, the creativity and the innovation that’s needed to make a state lottery program successful in this age of online gaming, video gaming on what seems like every corner, casino riverboats, social media and scores of other entertainment options that compete for people’s disposable income.

Four years ago, The State Journal-Register expressed support for a fresh approach, top to bottom, to resuscitate an ailing Illinois lottery. It didn’t go as planned, as sometimes happens with ideas that haven’t been tried before.

If Illinois embarks on finding a new private lottery manager, which it should, let’s hope the next one is given the leeway to truly manage the lottery to the best of its ability and leverage its expertise for the good of Illinois — as well as the wisdom to not make promises it can’t keep.

—GateHouse News Service