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.