Seven years after Illinois heralded privatization as the cure for lagging lottery sales, the state’s latest lottery director now says he’s not sure the model works.
The private firm hired to manage the Illinois Lottery never met its lofty bid projections, and for 21/2 years the state has said it’s been working to replace it. But the process has dragged on, even as Tribune investigations have exposed questionable actions of and payments to the firm.
Some lawmakers have questioned the lottery’s oversight of the firm, why it’s taking so long to replace the firm and whether the privatization model is even right for Illinois.
At a state Capitol budget hearing Wednesday, Sen. Heather Steans, D-Chicago, asked the lottery’s acting director, Greg Smith, about the latter. Smith wouldn’t directly say if he thought privatization was wrong in Illinois, citing the pending replacement process. But, in general, he offered a far less glowing assessment of privatization than previous lottery directors and other state officials.
“I know that two other states, New Jersey and Indiana, that all are under private management have experienced significant difficulties, and it may not mean that private management is the best approach for lotteries,” Smith said.
It’s not the first time the administration of Republican Gov. Bruce Rauner has offered a lukewarm assessment of the privatization effort pushed by his Democratic predecessor Pat Quinn in 2010.
A year ago, in announcing the replacement process, Rauner suggested that if his aides couldn’t find a good replacement, the state could abandon privatization and form a quasi-governmental agency to run the lottery — something that would have to be approved by lawmakers.
For now, the law requires privatization. And only one firm, Camelot, the runner-up in the 2010 bidding process, has bid to replace 2010’s winner, Northstar Lottery Group. Northstar, which took over management in 2011, was set to be replaced as early as Jan. 1, but the process has dragged on for reasons Smith blamed on the complexity of the deals.
He noted that Illinois was the first state lottery to ink a privatization contract: “This is also the first undoing of one and on-boarding of a second one. It is uncharted territories for lotteries.”
All the while, Illinois’ biggest moneymaking venture struggles. Privatization was supposed to literally pave the way for better roads, bridges and other infrastructure in Illinois, but in recent years the tepid lottery ticket sales have barely covered the legally mandated payments to subsidize schools. On Wednesday, Smith told senators just $5 million more was raised in 2016 beyond the $690 million that was required to be sent to schools — a sliver of the hundreds of millions in additional cash that Northstar’s management was originally expected to produce.
Along the way, Tribune investigations have exposed a series of questionable actions by Northstar and poor oversight by the state, including:
*Failing to award many of the biggest prizes for scratch-off games before the games were pulled from the market, with state officials repeatedly missing warning signs of the practice. Two class-action lawsuits have been filed on behalf of players and retailers accusing Northstar of fraud.
*Pledging state money to pay still-secret salaries of politically connected advisory board members who pledged to keep an eye on Northstar, yet answered to Northstar and did little to question the firm’s actions.
*Using taxpayer cash for “disentanglement” expenses — including pricey steak dinners and retention bonuses to a still-secret list of Northstar employees — as part of an exit deal that resulted in Northstar, and its owners, together collecting more fees than ever as the state searches for a replacement.
Northstar was specially formed to manage the Illinois Lottery by two longtime vendors who continued to do work for the lottery, International Game Technology and Scientific Games. Both firms have told the Tribune that they acted in the best interests of players and the state and have complied with all laws and contracts.
Senators did not touch on those issues during Wednesday’s brief budget hearing. For months, a group of House lawmakers has said it wants a separate, specific hearing on Northstar’s management, but no date has been set.
One of those lawmakers, Rep. David McSweeney, R-Barrington Hills, said he’s continuing to push for hearings to get more details into what he called “a fiasco from Day One.”
McSweeney said he’s frustrated to hear there’s only one bidder to replace Northstar, and he thinks the process should be reopened to entice more bidders. He said he still supports the idea of private management.
“We’ve got to find a way to get rid of Northstar. Northstar has done a terrible job,” he said. “But I don’t favor state government taking over management of the lottery. We need to get a private firm in, one that has very close monitoring by the General Assembly.”
