Illinois Lottery Agreement Projected to Generate Additional $1.1 Billion for Capital Projects, Education

CHICAGO – September 15, 2010. Governor Pat Quinn today announced Northstar Lottery Group as the first Illinois Lottery private manager. Northstar, a consortium of experienced gaming and advertising professionals, was selected based on a rigorous and competitive procurement process. Northstar’s business plan anticipates an annual growth rate of 10.6 percent over the next five years, generating approximately $4.8 billion in net income. The increase in proceeds will enable the State to maintain its commitment to education, while funding capital projects that will create jobs for thousands of Illinois workers.

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“Hiring a private manager to run the day-to-day operations of the Illinois Lottery is a creative way to increase revenues for critical programs that will aide Illinois’ economic recovery,” said Governor Pat Quinn. “Today’s announcement allows the Illinois Lottery to continue its crucial funding of our schools while increasing revenue for the Illinois Jobs Now! program to put thousands of people in our state back to work. I am confident that Northstar will build on the success of the Lottery’s current leadership.”

Northstar is a consortium comprised of gaming companies GTECH and Scientific Games and marketing/advertising partner Energy BBDO. Together, they form a team of professionals with more than 50 combined years of experience in the Illinois market. GTECH and Scientific Games currently work with multiple lotteries providing gaming machines, software and instant tickets. Energy BBDO is the Chicago-affiliate of BBDO Worldwide, an internationally-recognized advertising company.

“The Illinois Lottery is happy to welcome Northstar as our new private manager,” said Jodie Winnett, Illinois Lottery Acting Superintendent. “Northstar has the experience, knowledge and resources to be a responsible steward of the Illinois Lottery, bringing benefits to our players, retailers, and the State of Illinois.”

The selection process was guided by a team of external advisors including: Oliver Wyman, a international consultant with extensive experience in the lottery and gaming industry; Scott Balice Strategies, an advisor on a range of topics including previous private management efforts; Christiansen Capital Advisors, LLC, which has expert knowledge of lottery performance benchmarks and operations; and Kroll, an international investigative firm that performed background checks on individuals and firms that participated in the procurement process and also monitored the process to ensure fairness and transparency.

“The Illinois Lottery has done what no public agency has ever done with competitive bids. They hired an experienced outside investigative firm to ensure a fair and open process, and conducted international investigations of the bidders,” Kroll Managing Director Jeffery H. Cramer said. “All bidders were provided identical information, they were given the same opportunities to ask questions, and no bidder was given preference over another. This is how public bids should be conducted.”

Selection criteria included profitability, past management experience, ability to increase diversity, expansion of the Lottery’s client base and commitment to public good. A public hearing was also held to provide an opportunity for finalists to present their proposals and allow the public to comment on those proposals.

“This has been one of the most thorough evaluation processes ever undertaken by the state,” said Governor Quinn. “Having a team of independent advisors was very important, especially knowing that it was led by a former federal prosecutor who examined the background of every bidder and ensured a fair process. This open process has allowed us to select the right organization to lead Illinois’ Lottery into the future.”

The private manager is expected to begin the transition period four to six weeks after the agreement is finalized based on the completion of a full probity investigation. Once finalized, this agreement will be the first of its kind in the nation. The State will continue to retain ownership of the Lottery and will have final authority on any changes suggested by the private manager.

Passed by the Illinois General Assembly and signed into law by the Governor in December 2009, Public Act 096-840 directs the State to select a private manager to oversee operations by Sept. 15, 2010. Under the law, Lottery proceeds to support education will increase each year from fiscal year 2009 levels of $635 million based on inflation. All additional net revenues will support the Illinois Jobs Now! capital program.

“Northstar Lottery Group is thrilled to have the opportunity to work with the State of Illinois in this groundbreaking endeavor,” Chairman of the Northstar Board of Managers Jaymin B. Patel said. “Our model is one of sustainable development through growth of the player base by attracting new customer groups and re-engaging with lapsed players. Responsible gaming will be at the core of everything we do. We could not be more committed or prepared to help make this effort a success.”

The new management team will be paid a fee for its services and will have an opportunity to earn incentive pay based on performance. To receive any incentive compensation, the private manager will have to meet performance goals set by the State. The private manager will also face significant financial penalties for not meeting performance targets.

The private manager will have incentives to grow lottery net income and the State will be protected by holding the private manager accountable for net income targets. If the private manager’s net income targets are not met, it will pay a penalty of 50 percent of the net income shortfall to the State and 100 percent of the net income shortfall if that amount is less than the State’s set baseline level. The incentive compensation is capped at five percent of the total net income, as are the penalties, based on guidelines set by the United States Department of Justice.

Founded in 1974, the Illinois Lottery is a state agency with annual sales over $2 billion. Since its inception, the Lottery has contributed more than $14 billion to the state Common School Fund to assist K-12 public schools. Players must be at least 18 years old. For more information on the Illinois Lottery please visit our Web site at www.illinoislottery.com.

For additional information about the Illinois Lottery private manager procurement process, visit http://www.illinoislottery.com/subsections/Management.htm