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Lottery contractor likely $200 million short on profits

3 months, 1 week ago Associated Press

Northstar Lottery Group says the state has hamstrung them

From Associated Press:

Illinois' private lottery contract has never reached the lofty sales promises it used to win a bid four years ago and is expected to fall more than $200 million short of what it owes the state when the budget year ends June 30.

But Northstar Lottery Group says it's been hamstrung by state officials, with whom they have an already frosty relationship and accuse of throwing up road blocks -- from canceling games it wanted to launch to prohibiting the sponsorship of Chicago's Pitchfork Music Festival in 2013 because of headliner R.Kelly.
 
Regardless, Northstar's 10-year contract with the state details that falling short of its goals by 10 percent two years in a row is grounds for ending the partnership, no questions asked. It missed targets by almost 20 percent last year, and is on track to do the same this year.

A top lawmaker has said he's disappointed because a massive construction program was supposed to be funded with money Northstar claimed it could deliver.

The lottery giant's contract has been under scrutiny from the start. A report released by Illinois Auditor General Bill Holland just days before Northstar took over in July 2011 showed irregularities in the decision-making process to select the corporation. In one case, a panel member submitted his evaluations of proposed business plans for the $2 billion state lottery after Northstar won the bid.

Yet, company CEO Tim Simonson says it has done well despite factors working against it.

"Those were ambitious goals we set for ourselves, and we have fallen short of those goals. But the full perspective, we believe is important," Simonson said, arguing that his company has run the lottery better than the state.

In some cases, that's true. Northstar boosted lottery profits by almost 10 percent in 2012 and improved income is expected -- even if marginally -- this year. Plus, Illinois has accumulated millions of dollars in penalty payments from the company when lottery profits don't reach expectations.

Lottery customer service has improved dramatically, said Todd Jenney, the CEO for Huck's Convenience Stores. But his lottery sales haven't noticeably improved, which Jenney partly attributes to a cigarette tax increase and high fuel prices.

When Northstar took over the 40-year-old program, it promised contributions of $1 billion to the state in the fifth year of its contract. But it has been about $400 million short since in its first three years -- money that is supposed to go toward schools, charitable organizations and a $31 billion capital construction program launched in 2009.

When Northstar fails to deliver, the state gets penalty payments that make up for part of the shortfall. State lottery officials and the company can also raise or lower the amount owed based on market changes.

The company has requested about $900 million in "downward adjustments" to reduce what it owes the state --including a quarter-billion dollars just months after the takeover.

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