Lottery Contract Challenged

The two losing bidders in Illinois’ competition to privatize the state Lottery have filed protests with the Department of Revenue asking that the state scrap its selection and reopen bidding.

Gov. Pat Quinn last month announced the selection of Northstar Lottery Group to privately manage and expand the Illinois Lottery. The deal is expected to raise $1.1 billion over the next five years for education and to repay bonds issued to support the state’s $31 billion capital program.

Northstar beat out Intralot and the Camelot Group for the contract. The losing bidders contend in their protests that the bidding process was flawed and favored Northstar as some members of the consortium are current Lottery vendors.

Under the proposed contract, the state would retain ownership and control over the Lottery but day-to-day operations and expansion plans would be managed by Northstar beginning next year.

The Lottery currently generates about $2 billion in sales, producing $635 million in profits in fiscal 2009 that went to education.

Northstar believes it can increase that sales figure by 10.6% annually over the next five years by expanding the Lottery’s offerings, bolstering the number of retail outlets to 13,000 from 7,500, adding Internet sales, and through improved marketing.

Northstar is a consortium made up of two gaming companies GTECH and Scientific Games — both current state lottery vendors — and the marketing and advertising firm Energy BBDO. The group will be paid $15 million annually under a proposed 10-year contract with bonuses tied to Lottery revenue growth. The group also faces financial penalties if it fails to meet performance targets set in the contract.

Under the Lottery privatization legislation signed by Quinn last December, additional Lottery proceeds will first go to education. The amount must be increased annually at the rate of inflation from a base of $635 million. Additional revenue would then go to repay borrowing tied to the multi-year capital program known as Illinois Jobs Now.

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