Tuesday, September 14, 2010

Quinn to choose lottery manager tomorrow

By Jamey Dunn

Gov. Pat Quinn is expected to make a decision tomorrow that will be the first of its kind in the nation and could drastically change the way the Illinois Lottery is run for the next decade.

Quinn is set to choose a private firm to manage the lottery for 10 years. The state will pay the firm a management fee to cover costs and incentive payments that will be tied to profit increases. According to the Justice Department, no state can pay a private firm more than 5 percent of its net lottery income.

The legislature approved the move last year as part of the capital bill revenue package — which also includes legalized video poker — with hopes that a management company could increase lottery profits. The firm Quinn picks will also run a pilot program to sell lottery tickets online.

Jodie Winnett, acting lottery superintendent, said that after the firm takes over, there will still be a Lottery Division in the Department of Revenue. The state will have final say over the firm’s decisions and will continue to license retailers, pay prize claims and conduct drawings.

The process leading up to tomorrow’s choice has been roundly criticized for lacking transparency. The companies’ bids are not open to the public. Intralot S.A, a firm based in Greece, was eliminated from the running without public explanation and is threatening to protest the final agreement. Members of a panel advising Quinn remain anonymous.

However, Jeffery Cramer, who helped to investigate bidders and the selection process for the state, said some information had to be kept from the public, so Illinois could get the best deal. “It would have been improper, in my opinion, to reveal a lot of the documents early in the process,” he said at a Chicago hearing. Cramer, managing director of the Chicago office of Kroll's Business Intelligence, said that releasing the names of the panel members would have been a “recipe for disaster” from an ethics standpoint because it would have left them open to possible pressure and attempts to influence their choice.

He said the competition was fair because all bidders had access to the same information. “This process is not going the way of the Illinois … well-documented history of corruption,” he said.

The two bidders Quinn will chose between stand pretty sharply in contrast. Northstar Lottery Group represents two vendors — Rhode-Island-based GTECH Corp. and New-York-based Scientific Games Inc. — that already provide services for the Illinois Lottery. That company is vying against Camelot Group, which operates the Untied Kingdom’s lottery.

At a public hearing in Chicago, where each firm gave the broad strokes of its case, Northstar representatives emphasized the group’s experience working with the state’s lottery and its ability to make a smooth and speedy transition. “We are ready to push the button as soon as the governor makes his decision,” said Connie Laverty O'Conner, chief operating officer of Northstar.
Jaymin Patel, president and chief operating officer of GTECH Corp., played up the group’s experience as vendors, saying that it will make communication more efficient and claiming Northstar can reduce vendor costs by 24 percent in the first year.

However, Camelot Group representatives touted the fact that they have no connection to potential vendors and added that they want to conduct a transparent procurement process to hand out contracts.

Dianne Thompson, executive director of Camelot Group, said her organization wants to replicate the model it has implemented in the U.K. of encouraging high-income young adults to play the lottery frequently but likely not buy many tickets at once. Seventy-two percent of the adult population plays the lottery in the U.K., compared with 49 percent in Illinois.

She said targeting that group makes the lottery less regressive and that it would last longer as a revenue source. “We’ve got millions and millions of people spending small amounts of money each week. And long may that continue,” she said. She added that Camelot Group would not launch any game that targets underage, low-income or gambling- addicted residents.

Quinn’s deadline to make a choice is tomorrow. Check back for an update.

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