Panel delays vote on outsourcing Indiana lottery

September 26, 2012

Indiana would retain control of its lottery even if it hires a private vendor to take over more of its operations, the Hoosier Lottery's executive director said Wednesday, noting that the state already outsources most of the business.

The State Lottery Commission postponed a vote on outsourcing most lottery operations to a private business that had been scheduled for Wednesday so members could have more time to digest proposals from two possible vendors behind closed doors. Chairman William Zielke said the vote would be taken Oct. 3. Officials expect to decide by Nov. 1 whether to sign a contract or leave lottery operations as they are.

Zielke said the commission had to "consider whether that's the right answer for us or not."

Rep. Pat Bauer, D-South Bend, who has been critical of Republican Gov. Mitch Daniels' privatization efforts, said any proposal would have to be carefully scrutinized to determine whether it was to the state's benefit.

"Whether or not it's a feasible deal, I think it has to be closely examined," he said in a phone interview. "The Toll Road looked like a good deal, but all the money we got for the Toll Road is gone, spent."

The state leased the Indiana Toll Road for 75 years to a private Spanish-Australian consortium for $3.8 billion in 2006. But that money, with the exception of a half-billion dollars socked away in a trust fund, has been either spent or committed to projects already. Daniels spokeswoman Jane Jankowski said Wednesday that highway revenues are expected to return to about the levels they were before the state received the lease payment.

If the lottery commissioners decide to proceed with outsourcing, they would choose between New York-based Scientific Games International and Rhode Island-based GTECH, both major lottery vendors. Two foreign firms dropped out of the bidding earlier this month.

GTECH already provides and maintains vending machines for the Hoosier Lottery. Scientific Games currently provides the central online lottery system, terminals and instant tickets for the Hoosier Lottery, and is the minority partner in Northstar Lottery Group — the company that won the Illinois lottery management contract.

Indiana officials announced in July that they would seek a 10-year contract for lottery marketing, sales and distribution services. But Executive Director Karl Browning said Wednesday that the proposals were for 15-year contracts that could be extended based on "extraordinary performance."

The vendor also could earn a $1 bonus for each dollar by which it exceeds a revenue threshold set by the state, but would have to pay the state dollar-for-dollar if it falls below that benchmark, he said. He did not say what that threshold was. He did say that the vendors believed they could increase the revenue returned to the state by as much as 20 percent, though they did not think that increase would be sustainable.

Private firms already handle 88 percent of lottery operations and the outsourcing proposal would increase that to 95 percent, Browning said. Indiana would retain full ownership and control of the lottery, he added.

"It doesn't seem that different from what we have today," said commission member Jennifer Alvey.

Browning said part of the increased revenue would come from a plan to "broaden the player base."

"We're not out to expand gambling," he said. "We just want to attract people who don't necessarily play today."

But asked after the public session how the state could attract more players without expanding gambling, Browning replied: "That depends on your definition of expanding gambling."


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