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Indiana lottery not spooked after Illinois fires contractor

September 21, 2015

Illinois Gov. Bruce Rauner’s decision to fire its lottery operator isn’t spooking Indiana, which relies on one of the same companies to run its gaming system, despite the fact that both states have experienced less revenue than they once hoped for after turning over their lotteries to private companies.

Rauner announced Friday that it had reached an agreement to end its contract with Northstar Lottery Group LLC and allow a new private manager of the Illinois lottery to use its own suppliers.

That means Illinois won’t have to hire Gtech Corp.—one of Northstar’s parent companies and Indiana’s operator—under its new contract.

Hoosier Lottery spokeswoman Courtney Arango said in a written statement to IBJ that while she couldn’t speak for other state lotteries, Indiana is committed to keeping its contract with Gtech Indiana.

“The State Lottery Commission of Indiana and Gtech Indiana are together working to successfully execute the comprehensive fiscal year 2016 business plan,” said Arango, public relations director for the state lottery commission. “After nearly one quarter into this fiscal year, the Lottery continues to meet its revenue forecast. We remain focused on maximizing revenue to the state of Indiana, and the commission will continue to monitor performance of the contract.”

Gtech officials did not immediately respond to IBJ’s request for comment.

Illinois’ move comes as both states have faced lower-than-expected lottery revenues.

The Hoosier Lottery Commission voted in June to reduce the revenue goals Gtech Indiana once said it would meet when it was first selected three years ago. In return, Gtech lowered its management fees and gave Indiana a one-time payment of $18 million.

Gtech’s revised goal for Indiana revenue in the 2016 fiscal year is $270 million, compared to its original goal of $365 million.

So far, the Hoosier Lottery Commission says Gtech is on track to meet its goals. Revenue is up $32.6 million from last year, according to a financial statement from the lottery for the first two months of the 2016 fiscal year.

Lottery revenue realized by the state fell to $243 million in fiscal 2015, down from $251 in fiscal 2014. While not meeting goals, the revenue in 2014 was still a lottery record. The money raised by the lottery goes toward pension relief and excise tax reductions.

National lottery consultant Herb Delehanty, which Indiana hired to analyze its contract this year, said the Illinois contract with Northstar has been rife with conflict from the start.

He said that it doesn’t signal bad news ahead for Indiana.

“I don’t know why it would,” Delehanty said. “Illinois’ deal was done under a different contract, a different arrangement, and I’m guessing if Illinois is getting rid of the contract, they’ve continued not to perform at the expected level. There’s no question Indiana is doing better relative to its peers than it was prior to the agreement (with Gtech).”

Delehanty said several state lotteries have faced lower-than-expected revenues as a result of lackluster Powerball and Mega Millions sales.

“That really impacts the revenues,” Delehanty said, “which is out of the control of these companies.”

Illinois was the first state to hire a private operator for its lottery, followed by Indiana and then New Jersey.
 

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