Friday, June 12, 2015

Private Lottery Contractor Made A Bad Deal So State Rewrites Contract

UPDATED: Former Gov. Mitch Daniels' administration awarded a 15-year deal to GTECH to operate the Hoosier Lottery in 2012. Less than three years later, the commission that oversees the Hoosier Lottery has re-written the contract because GTECH couldn't achieve the revenue targets it was contractually obligated to meet. GTECH agreed to make penalty payments to the state whenever it failed to reach the target revenues. Because the company was having to pay millions in penalty payments, the state has decided to come to its rescue and lowered the annual goals rather than exercise its right to terminate the contract

Long-time readers will recall that GTECH also won a contract to manage Illinois' lottery before it won Indiana's contract. After it failed to meet revenue goals three straight years, former Gov. Pat Quinn terminated the state's 10-year contract with the firm rather than permit the company to continuum making penalty payments to the state. The contract has remained in limbo after Bruce Rauner became Illinois' governor in January.

GTECH's original contract required it to meet revenue goals of $320 million and $365 million, respectively, in the next two fiscal years. The Journal-Gazette is reporting that the terms of the re-written contract lowers the revenue goals to $270 million in the next fiscal year with an incentive goal of $290 million. The company will make a one-time lump sum payment of $18.25 million and agree to lower its annual management fee in consideration for a reduction in the revenue target goals. The company is expected to pay a $16 million penalty payment at the end of this fiscal year based on an expectation it will return fewer dollars to the state--$243 million compared to $251 million last year.

GTECH is paid an annual management fee of $13 million. It will now share all profits above $290 million with the state. Under the original contract, it only shared revenues if the annual profit exceeded $360 million. According to the Northwest Indiana Times, GTECH's increases by just $5 million in each subsequent year of the 15-year contract. Officials claim the market has permanently changed due to "jackpot fatigue," whatever that's supposed to mean. The bottom line is that the changes made by the commission ensures a hell of a lot more money will shift from the state's pockets to GTECH's pocket.


Anonymous said...

This is disgraceful! Where are the legislators and our fake conservative governor? Keep up the good work Mr. Welsh. 😁

Anonymous said...

If they can't perform under the terms of their bid, they're out.

What a great deal. I bid lower than everyone else, win the bid, and when I can't make my terms work, the state doesn't re-bid the contract, it just bails me out.

Why doesn't everyone lie on their bids? What's the risk of nonperformance?

Bailing out a bad bidder destroys the competitive bidding process.

Flogger said...

State Lottery Commission of Indiana is composed of five members appointed by the Governor of Indiana. (web site says five members but only 4 are listed. Additionally the Web Site says - The Commission acts as an advisor to the Executive Director making recommendations regarding the operations and management of the Hoosier Lottery. However, the Web Site does not say who the the Executive Director is.)

William A. Zielke was first appointed Chairman of The State Lottery Commission of Indiana in December 2009 by then-Governor Mitchell E. Daniels, Jr. In May 2013, he was reappointed as Chairman by Governor Michael R. Pence.

Gregory M. Fitzloff was first appointed as Commissioner of The State Lottery Commission of Indiana in August 2007 by then-Governor Mitchell E. Daniels, Jr. In April 2013, he was reappointed as a Commissioner by Governor Michael R. Pence.

Kate Healey Snedeker was appointed an Indiana State Lottery Commissioner in December 2012 by then-Governor Mitchell E. Daniels, Jr.

Deb Kunce, FAIA, was appointed as a Commissioner of the State Lottery Commission of Indiana in October 2013 by Governor Michael R. Pence.

Seems like Pence is protecting Daniels reputation.

Anonymous said...

Daniels must now be a paid member of GTech's Board of Directors
for such sweetheart terms to be allowed

Gary R. Welsh said...

The last I checked the lottery's executive director was Sarah Taylor, the former Marion Co. Clerk.

Eric Morris said...

The lottery: A tax on people who can't do math--unless you are this crony connected corporation, then bad math gets you a better contract!

Pete Boggs said...

Fail your way to "the top;" the crony statist, consumptive sector way.

Flogger said...

Ahh yes I found Sarah Taylor - INDIANAPOLIS, Indiana (September 7, 2013) -- Governor Mike Pence today named Sarah Taylor as the Executive Director of Hoosier Lottery.
Sarah Taylor will serve as Executive Director of the Hoosier Lottery beginning October 1, 2013. Taylor is the current Director of Constituent Services for the 48th Mayor of Indianapolis, Gregory A. Ballard. She served eight years as Marion County Clerk in the late 1980's and early 1990's

Ha, served under Greg Ballard sounds about right.

Anonymous said...

If you scroll through the slide presentation attached to the Northwest Indiana Times story it details the changed revenue targets.

Anonymous said...

Would this be the same firm that thought of the horrible idea of winning bacon for life? Even dummies who actually pay their lottery tax, won't want to play this one.