• Lottery managers owe state $20 million

    by  • March 18, 2013 • News

    Illinois Lottery officials said late Friday that the lottery’s private management firm owes the state $20 million for failing to meet its profit targets in the year ended June 30.

    But that’s not likely to be the final word.

    The size of the penalty has been hotly disputed and under audit by the state since the Illinois government’s fiscal year ended nearly nine months ago. But Northstar Lottery Group LLC, the Chicago-based firm that manages the state lottery, can still challenge the findings before a third-party mediator.

    During the first full year under Northstar’s management, a state audit found that the lottery generated $757 million in net income. That set a new record but fell about $94 million short of the level promised by Northstar, a consortium of Providence, R.I.-based Gtech Corp. And New York-based Scientific Games Inc., which runs the lottery for the state under a five-year private management agreement, or PMA. If Northstar had exceeded the target, it would have earned a bonus.

    The audit results were announced Friday, but the audit statement was not released.

    “Our agreement requires Northstar be held accountable for this shortfall,” Illinois Lottery Superintendent Michael Jones said in a statement. Although the lottery is under private management, the state still oversees it.

    Northstar’s target for last year was $822.8 million, adjusted downward from the original $851.2 million that Northstar bid to win the management contract. A third-party mediator ruled in November that actions by the state that affected the lottery’s profitability before Northstar took over justified an adjustment. At that time, Northstar estimated it might owe about $5 million in penalties.

    “the results issued by the lottery do not appear to be consistent with Northstar’s understanding of our performance under the PMA,” said Robert Vincent, senior vice president of communications for Gtech, in an email. The company owns 80 percent of Northstar. “The lottery has not provided Northstar with a copy of the audit as is their obligation under the PMA. Once Northstar is provided the official audit, we’ll review and have further comment.”

    Northstar was paid $85.1 million for its services in fiscal 2012, according to the state, which plans to withhold future monthly payments to collect the $20 million it claims it is owed.