A new Associated Press study found that two years after then-Illinois Governor Pat Quinn and current Governor Bruce Rauner tried to fire Northstar Lottery Group, the company still oversees the state’s billion-a-year lottery and has earned millions more in fees than its original contract indicated. Also Northstar no longer has to pay additional penalties for missing sales goals.
State legislators hired Northstar in 2010–the first time a state had contracted with a private firm to operate a lottery. Indiana and New Jersey also hired private managers after Illinois. Since then all three states have lowered revenue projections or restructured contracts because of disappointing sales.
Under a termination agreement negotiated by Rauner in 2015, a replacement firm was supposed to have been hired by January 1,2017. But that hasn’t happened, said lottery spokesman Jason Schaumburg. “While getting a new manager in place in a timely manner is of great importance to the state, our priority is to ensure we are getting the best deal for taxpayers and that the new manager performs at a level taxpayers deserve,” he said.
In fact, Northstar could receive up to $17 million per year in “disentanglement fees” plus up to $14 million a year in management fees. Rauner’s office extended Northstar’s company once and now is negotiating another through the end of the year.
At first, Northstar reported record lottery sales. Then sales fell far short of goals in the following years. Northstar and the state entered into arbitration. Northstar officials admitted to shortcomings but said the state interfered, such as canceling games Northstar wanted to offer.
Rauner’s lottery director negotiated a new agreement with Northstar, and said it was “a new day for the Illinois Lottery” and a better deal for taxpayers. The agreement included a transition period in which Northstar would continue to work alongside the new manager.
A request for proposals for a new manager was issued in July 2016, 10 months after the second termination agreement was signed. But the only firm that submitted a bid was Camelot, which operates the British lottery.
In recent years lottery sales have essentially remained flat. In the fiscal year ending June 30, the lottery posted its second smallest sales increase since 2003, according to a legislative report. In that same fiscal year the lottery transferred $691.6 million to the state school fund. No money was transferred to the capital fund “due to poor overall results by the lottery,” according to a state Commission on Government Forecasting and Accountability report.
Meanwhile, two longtime Illinois Lottery players recently filed a second lawsuit claiming Northstar defrauded players by not awarding many of the top prizes in its largest instant ticket games. The latest lawsuit, filed in Cook County Circuit Court on behalf of longtime scratch-off game players Dennis Atteberry and Tamara Burton, also cited a December Chicago Tribune investigation exposing Northstar’s actions after being hired by the state.
Attorney Larry Drury, said he could not speculate on whether his clients’ lawsuit would be merged with the first one, which was filed in St. Clair County and recently moved to federal court at Northstar’s request. It also seeks class-action status to cover all players who purchased tickets. “Each of the cases will proceed along their own way. They have their case there, and we have our case here,” Drury said.
The Tribune study indicated Northstar significantly increased the number of tickets printed for some of the 17 biggest-prize instant games that started and ended during the five year period after the company took over lottery management in mid-2011. However, when sales started to drop for some of the games, Northstar stopped selling tickets before all, or sometimes any, of the grand prizes were awarded for those games. In fact, less than 60 percent of the grand prizes in those games were awarded–a lower rate compared to other states and when Illinois ran the lottery on its own.
In addition, the Tribune study indicated when the lottery ended the games early, it often paid a lower percentage of revenue than the games were designed to pay.
Northstar has said players’ odds of winning did not change based on when games ended. However, the latest lawsuit alleges, like the earlier lawsuit, that Northstar’s actions lowered players’ odds and payout rates.
International Game Technology and Scientific Games own Northstar. Previously they have said they removed the games that performed poorly and added more popular ones in the best interests of players.
Illinois lawmakers said a House committee is expected to hold hearings this spring on Northstar’s lottery management practices as revealed in the Tribune’s investigation.
