The Hoosier Lottery's top official said she is "pleased" with a private manager's performance, even though the firm fell short of its income target during the first full fiscal year of its contract with the state.
That's because the amount of money that will go to the state—about $250 million—will be a record, and is about 12 percent more than in the 2013 fiscal year, when the lottery realized $224 million, Hoosier Lottery spokeswoman Courtney Arango said.
“We are pleased with the financial results achieved in the first full fiscal year of the Hoosier Lottery’s contract with Gtech Indiana,” Hoosier Lottery Executive Director Sarah Taylor said Monday in a prepared statement.
Gtech Indiana LLC owes the Hoosier Lottery about $1.6 million for falling short of its goal in the 2014 fiscal year, which ended June 30, according to records released Monday in response to a request from IBJ.
The shortfall payment represents less than 1 percent of the total income, $256 million, that Gtech promised to generate under a 15-year agreement with the state for management of the lottery. The 2014 fiscal year marked the first full year of that contract.
The shortfall payment was calculated by the end of July, as required under the agreement, and the information is scheduled to be presented to the State Lottery Commission of Indiana on Tuesday morning.
The news about Gtech’s performance comes a few days after Illinois Gov. Pat Quinn ordered his state's lottery to fire Northstar Lottery Group, a consortium of Gtech and its competitor, New York-based Scientific Games. Northstar fell short of its profit commitment by $242 million for the 2014 fiscal year and was about $480 million behind target over the first three years of its 10-year contract.
Illinois in 2010 became the first state to privatize its lottery, followed by Indiana and New Jersey.
Indiana officials don’t appear to be concerned about Illinois' experience.
While Gtech fell short of its goal, total sales exceeded $1 billion, the largest amount in the Hoosier Lottery's 25-year history. The previous high was $934 million in fiscal 2013.
After subtracting overhead, about $250 million will be transferred to the state. Indiana uses lottery revenue to offset vehicle excise taxes and make payments to police, fire and teacher pension funds, among other allocations.
Gtech’s shortfall payment of $1.6 million would have been greater, but the company voluntarily reduced its management fee and granted a $2.8 million credit to the lottery commission. The company also underspent its budget for direct lottery expenses, such as instant-ticket printing and advertising, by $2.3 million.
Under the agreement, Gtech could have pocketed its internal savings and charged the full management fee, but that would have resulted in a larger shortfall payment because the management fee is part of the annual net-income calculation, said Tim Kuehr, chief financial officer for the lottery commission. Lottery expenses also are part of that calculation.
Gtech, a subsidiary of Rhode Island-based Gtech Corp., part of the global lottery company Lottomatica, has promised to bring the state $1.76 billion over the first five years of the contract.
"Overall, we are very pleased to come so close to our net income benchmark in our first year of operation, which was influenced by several factors: once-in-a-generation freezes and travel restrictions due to the polar vortex and performance of national games, particularly Powerball," Gtech said in a written statement. "We look forward to FY ’15 and continuing to fulfill our commitment to the state of Indiana."