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Lawmakers putting New Jersey lottery under microscope

November 23, 2015

The partial privatization of New Jersey's lottery under Gov. Chris Christie and its recent performance are going under a legislative spotlight.

The Senate oversight committee is holding a hearing Tuesday on the lottery's performance and the state's contract with Northstar Lottery Group, the vendor hired to oversee sales and marketing. Since the contract was signed, Christie has become a Republican candidate for president.

Northstar is an affiliate of Gtech Corp., the private operator of the Hoosier Lottery.

A closer look at the issue:

The contract

Christie entered a 15-year contract with lottery marketing and sales company Northstar New Jersey Lottery Group in 2013 to oversee parts of the state lottery, but revenues have missed projections.

The lottery had $976 million in revenue in fiscal year 2015—the first full fiscal year the company was involved—which was above late fiscal year projections, but still revised down from $1.04 billion.

The treasury, which oversees Northstar, also adjusted 2016 projections, from $1.02 billion to $1 billion.

Higher costs associated with the company have cut the state's income for the second straight year, creating a $136 million shortfall in the state's 2015 budget, according to internal documents obtained by The Associated Press.

The results are poor enough that the state is entitled to fire the company if its performance doesn't improve in the current fiscal year.

Earlier this year a treasury spokesman said the department would not answer a hypothetical question about firing the company.

"New Jersey Lottery officials are constantly monitoring the performance of Northstar and other vendors and would always act in the best interests of the State and its citizens," spokesman Joseph Perone said in a statement. Perone did not respond to recent requests for comment.

The problem

Treasury officials and even Democratic lawmakers attribute the missed marks to a national trend in lower lottery sales. Former Treasurer Andrew Sidamon-Eristoff earlier this year called the missed projections a disappointment but said the administration was satisfied because of what he called a "national downturn" in the lottery business.

And if it were not for Northstar's to increase sales, revenues would have decreased further, Perone said.

But New Jersey's sales of Powerball have done worse than the national average, falling 29 percent from disappointing 2014 results. Sales of instant games, such as scratch-off tickets, performed better than traditional lottery games last year— but not by enough to offset the damage.

Documents obtained by the AP also showed the lottery struggling with higher expenses. The state kept 34 cents in profit from every $1 in ticket sales before the Northstar contract. Under Northstar profit margins went to 30 cents on the dollar.

What's next?

Democratic State Sen. Bob Gordon, who chairs the committee, says it's unclear whether the state is benefiting from the Northstar contract.

"In fact, there is a real question as to whether Lottery privatization is paying off anywhere," he said. He cited Illinois, which privatized its lottery in 2011 and tried to cancel a deal with a Northstar affiliate last year following contract disputes and under-performance.

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.

Gordon says the hearing will focus on how the contract was developed, changes made to performance measures, and how the state monitors and evaluates Northstar's performance.

The state's collections from the lottery were up about 4 percent year to date from October 2015 compared with October 2014, according to the latest Treasury data.

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