GTECH Misses Lottery Revenue Targets For Third Straight Year In Illinois

GTECH, the Italian company hired by the Hoosier Lottery to manage the state-run lottery, has fallen short in meeting revenue targets for the third straight year in a similar management agreement it entered into with the State of Illinois to operate that state's lottery. GTECH operates the Illinois lottery in partnership with another vendor, Scientific Games, as Northstar Lottery Group, and while the company has increased revenues above the levels achieved under the state's control, it keeps failing to meet the revenue targets it promised to the state. The firm has already been forced to pay $60 million in penalty payments for missing past targets.

The Chicago Tribune reports that Northstar is projected to end the current fiscal year with $2.6 billion in gross sales and revenues of $760 million. Under its contract, Northstar's target was $3.5 billion in gross sales and net revenues of $980 million. Former Chicago Bears player turned private equity manager Gary Fencik, who chairs the Lottery Commission, wondered whether the governor should rethink Northstar's agreement.  "I know it's an election year and it's a difficult decision, but the question has to be determined by the governor of this state about whether he is satisfied with what will be a three-year track record from the outside firm he chose to run the lottery," Fencik told the Tribune.

Northstar became the first private operator of a lottery in the nation when Illinois awarded it the contract in 2010. As the Tribune notes, the state's auditor general issued a scathing report which highlighted irregularities and flaws in the process of awarding the lottery contract. The contract was very attractive to the state at the time, which was and still is facing serious budget shortfalls. Soon after the contract went into effect, Northstar began asking the state to lower the net revenues it promised in the original contract.

The IBJ recently reported that GTECH is failing to meet its revenue targets during its first year operating the Hoosier Lottery. At the end of April, Hoosier Lottery sales year to date of $852.4 million were running 3% below the targeted level provided under the first year of the contract. GTECH would have to exceed sales projections by 14% through the end of June in order to make up the difference needed to generate promised net revenues of $256 million. As happened in Illinois, the losing bidder to GTECH during the bidding process, Scientific Games, complained that Indiana Lottery officials' bidding process was flawed to favor GTECH. There was only a 1.7% difference in the revenues promised by the two competing companies in the initial bids submitted, and Scientific Games argued that Lottery officials left money on the table by not seeking best and final offers from the two bidders, a move made by Lottery officials to ensure that the contract was awarded to GTECH.