Monday, March 18, 2013

Illinois Lottery Fines G-Tech Firm $20 Million For Falling Short On Sales

G-Tech Hired The Indiana Gaming Commission's General Counsel Last Month After Winning 15-Year Contract To Operate Hoosier Lottery
A private gaming company controlled by the same company to which the Hoosier Lottery awarded a privatization deal last year has been fined $20 million by the Illinois Lottery for falling short nearly $100 million on what it had promised it would deliver the Illinois Lottery in sales. Northstar, a partnership between G-Tech and Scientific Games, had promised Illinois lottery officials it would achieve sales of $851 million during its first full year of operation. Instead, sales came in $94 million short at $757 million. Under Northstar's contract with the Illinois Lottery, it can be fined each year it fails to reach sales goals promised by the private operator the Chicago Tribune reports. Illinois officials had asked a mediator to assess $25 million in fines against Northstar.

Crain's Chicago Business reports that there is an ongoing public feud between officials at G-Tech and Illinois Lottery Director Michael Jones. Jones tells Crain's Greg Hinz that officials at G-Tech, a company which is owned by the Italian-owned Lottomatica Group, are behind gossip questioning his management of the Illinois Lottery and his extensive travel schedule overseas. Before becoming the Illinois Lottery's Superintendent, Jones worked for Independent Gaming Research, a Chicago-based gaming company. He divested his interest in the company after taking his job with the Illinois Lottery, but Hinz says Jones persuaded Northstar to hire IGR as a contractor a month after taking his position at the Lottery. "But the lottery reversed the decision amid concerns over the ethical appearance thereof," Hinz writes but adds, "I'm also told—by Mr. Jones and others—that Northstar since has hired ILR/IGR for considerable work in Illinois."

Jones' travels abroad have included trips to Barcelona, Dublin, London and Rome where Lottomatica is based. Jones defended the trips based on his claim that Europe is far ahead of the U.S. with online gambling, something Illinois officials are mulling as a way of increasing the state's gaming revenues. Jones told Hinz the trip to Rome "gave him the chance to meet with officials from Lottomatica." Yet in the same breath he accuses the company's G-Tech officials with airing his dirty laundry. "Mr. Jones charges that all of this dirty laundry is coming from G-Tech, which declines to comment," Hinz writes. "He says Gtech is the real reason the state's ballyhooed move to sell lottery tickets on the Internet has flopped, with sales only recently hitting $100,000 a week. The Internet portal they had was not intuitive . . . (it was) too difficult for customers to maneuver."

Ironically, it was G-Tech's Illinois partner at Northstar, Scientific Games, which cried foul when the Hoosier Lottery awarded a 15-year privatization deal to G-Tech last year. A difference of only 1.7% separated the competing bids tendered to the Hoosier Lottery in response to its request for proposals, but state officials declined to seek best and final offers from the competing vendors, the usual practice in larger, complex bids for services. At the time the Quinn administration awarded the contract to Northstar to manage Illinois' lottery, complaints arose that the bidding process was rigged and that large campaign contributions funneled by the bidders to Gov. Quinn's 2010 re-election campaign influenced the outcome.

Strangely, the mainstream news media has ignored a report last month by Ed Feigenbaum's Indiana Legislative Insight that G-Tech hired the Indiana Gaming Commission's general counsel as its new Indiana counsel with the blessings of Indiana' Inspector General. According to an advisory opinion issued by the Indiana Ethics Commission last month, the IGC's general counsel sought an opinion concerning proposed post-employment with G-Tech's Indiana affiliate, G-Tech Indiana, LLC, as its general counsel. Then IGC general counsel Adam Packer disclosed that G-Tech's parent company, Lottomatica, was licensed by the IGC, and in his role as general counsel, he participated periodically in making regulatory and licensing decisions regarding Lottomatica. The last such matter was a potential disciplinary action that the IGC had against Lottomatica, which the agency resolved on August 2, 2012. Lottomatica's license was last renewed by the IGC on June 17, 2012.

According to the ethics opinion, the Indiana Ethics Commission signed off, with certain caveats, to the hiring of Packer, the IGC's current general counsel, by Lottery vendor and gaming licensee, G-Tech. Packer notified the Office of Inspector General on November 29, 2012 regarding a potential conflict of interest under Indiana law due to him seeking post-employment with the licensee. Packer proposed to the IG a screening process that would shield him from discussions or actions concerning any matter related to Lottomatica. He proposed assigning those matters to a deputy general counsel who worked under him. The IG instructed Packer not to participate in any decision or vote during the remainder of his employment with the IGC. In the January opinion, the IG signed off on Packer's post-employment hiring by G-Tech with the understanding that his offer of employment would not be the result of information of a confidential nature. The IG concluded that Packer had properly disclosed the potential offer of employment and shielded himself from any actions pertaining to Lottomatica, it deemed him not to be in violation of the state's conflict of interest statute.

As to his post-employment by G-Tech, Packer acknowledged that his position as general counsel would require him to represent the company before the Indiana State Lottery Commission, although he said he did not believe he would be engaged in any conduct that would require him to register as an executive branch lobbyist. The IG cautioned that he would not be in violation of the state's revolving door law as long as he respected the one-year cooling off period restriction on lobbying the executive branch. The IG found that Packer had not participated in any contractual decision regarding G-Tech during his employment that would further restrict his employment during the one-year cooling off period. The advisory opinion concluded Packer had no authority to make regulatory or licensing decisions pertaining to his prospective employer to trigger the one-year cooling off period. Packer assured the IG the offer of employment was not intended to influence him in his capacity as the IGC's general counsel. Finally, the advisory opinion noted that Packer would be barred from assisting his new employer on any particular matter he personally participated in twelve specific areas covered by the post-employment rules.

What the IG's advisory opinion did not address was the party who administered the hiring process for G-Tech's Indiana counsel. According to ads placed in legal publications advertising the general counsel's position, potential job applicants were instructed to apply with the law firm of Barnes & Thornburg, which acts as G-Tech's outside counsel and as its registered lobbyist in Indiana. Barnes & Thornburg also represented G-Tech in its winning bid to run the Hoosier Lottery. Why is this important? Indiana lobbying records reveal that Barnes & Thornburg also represents the Majestic Star riverboat casino and Centaur Gaming, both of which are licensed and regulated by Packer's former employer, and both of which had matters pending before the IGC during the period the law firm was interviewing potential applicants on behalf of G-Tech for the position. The month before Packer began work for G-Tech, the IGC greenlighted the acquisition of the Indiana Live Casino in Shelbyville by Centaur's Indiana Grand Casino in Anderson. It's inconceivable that Packer would not have known that Barnes & Thornburg lobbied for those two licensed gaming entities. Packer is also a Marion Co. GOP precinct committeeman and knows just how much political influence Barnes & Thornburg lobbyists Bob Grand and Joe Loftus exercise. It doesn't take a rocket scientist to figure out that any adverse decision by the IGC affecting one of the law firm's clients could have negatively impacted his job prospects at G-Tech.

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