Critics: Lottery contract cloaked in secrecy

[September 03, 2010]  CHICAGO (AP) -- With less than two weeks before Illinois Gov. Pat Quinn awards a lucrative, first-of-its-kind contract for the private management of the state's $2 billion-a-year lottery, some are criticizing the selection process as too secretive and questioning whether it favors one powerful bidder.

Lottery officials have released little information, refusing until this week to name any companies that bid for the 10-year contract by the July 30 deadline and declining to identify members of the committee reviewing the bids. On Monday, officials named only the two finalists: Northstar Lottery Group, a partnership of three companies that each already hold Illinois Lottery contracts, and Camelot Group, which runs the United Kingdom's lottery.

The "largely invisible" process has fueled suspicions in a state with a reputation for political deal-making, said Andy Shaw, executive director of the Better Government Association.

"Widespread fears of this being a wired, inside deal are very legitimate," Shaw said. "This is Illinois, and three connected groups teamed up to leverage their clout; that has set off alarm bells."

The two bidders must submit final proposals on Friday that will outline how they would be paid, officials said. They will give public presentations on their bids Wednesday -- one week before Quinn must choose a winner for a contract that some estimate could be worth hundreds of millions of dollars.

Lottery spokesman Tracy Owens said information on all companies that bid or expressed initial interest will not be released until Quinn makes his selection because revealing such information before that would "potentially undermine the integrity of the process and potentially taint the outcome."

But observers say the names of all bidders and evaluation committee members should be public.

"The fact that it's not gives the appearance of impropriety," said Joan Zielinski, a lecturer in marketing at Northwestern University's Kellogg School of Management and director of the New Jersey lottery in 1985 and 1986. "Transparency does not taint the process."

Publicly naming bidders after proposals are received is routine in many states. In New Jersey, for example, officials said bidders are identified before the proposals are evaluated. And Texas this summer named three companies that bid for its lottery contract, with a decision expected this month.

Concerns about potential impropriety are particularly acute in Illinois, which is trying to shed a reputation for corruption after its previous two governors were convicted of felonies.

What's more, Illinois would be the first state to entirely privatize the management and marketing of its lottery. The move was mandated by legislators as a way to help boost revenue and attract new players -- which would mean more money for schools and capital improvement projects. The state would retain ownership and regulatory oversight.

Such a pioneering move should have made officials redouble efforts to conduct business in the open, said Ralph Martire, executive director of the Chicago-based Center for Tax and Budget Accountability.

Martire said he does not question the integrity of the Quinn administration, but "whether or not the winner is the right one -- and it may be -- I think every opportunity to be more transparent and accountable should be taken."

Some prospective bidders complained the state all but guaranteed few bids.

Greece-based Intralot, one of the world's largest lottery vendors, said this week that its bid was eliminated without explanation last month, and suggested the decision "presents a situation where healthy competition that would result in true value for the state is reduced or eliminated entirely."

Michael Jones, Illinois Lottery director from 1981-85, said he put together a group to bid for the contract but decided against it because of what he considered unreasonable requirements. Among other things, bidders had to have experience operating or managing a lottery, gaming company or comparable business with revenues over $1 billion and had to prove they had $20 million in unencumbered cash.

Northstar Lottery Group is widely believed to be the front-runner.

Its partners include two companies that normally are fierce competitors: GTECH, which already holds the Illinois contract for lottery machines, and Scientific Games, which supplies the state's instant tickets. They are among several companies that dominate the lucrative and highly competitive national and state lottery contracts, a business that often leads to accusations of insider politics and cozy relationships with government officials.

Northstar's advertising partner, Energy BBDP, also has a contract with the Illinois Lottery.

It's not surprising that only a few companies might be qualified to run a lottery as large as Illinois' or that states might favor companies with whom they've already worked, said David Schwartz, director of the Center for Gaming Research at the University of Nevada, Las Vegas.

"Nobody wants to turn over a billion-dollar-a-year business to someone learning as they do it," said Schwartz. "But in general, sunlight is the best disinfectant, especially when you're talking about something that's going to be a monopoly and important to the economic health of the state."

Shaw, of the Better Government Association, suggested an award is not a sure thing: Lottery officials don't have to make a recommendation, the governor could reject the recommendation or he could ask for more time.

"It would not be the worst thing to go back to drawing board and do this again," Shaw said. "I would rather see a do-over than a mistake."

[Associated Press; By TAMMY WEBBER]

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