 "The PMA is the contract that governs the relationship between the Illinois
Lottery and Northstar. It contains provisions that reward Northstar for
exceeding certain income levels and compensates the sate when Northstar fails to
reach certain net income targets set by itself in the bidding process," said
Michael Jones, Illinois Lottery superintendent. "Northstar won the private
manager contract by projecting a net income of $851.2 million in FY12, but
failed to reach this goal, consequently triggering a $20 million net income
shortfall payment to the state. Northstar missed their initial net income
commitment by $94 million. Our agreement requires Northstar be held accountable
for this shortfall."As provided under the PMA, Jones says the Illinois
Lottery plans to recoup this shortfall by withholding the future monthly
payments that Northstar regularly receives as part of its management fee for
operating the day-to-day operations of the lottery.
"We look forward to continuing to work closely with the new team at Northstar
to continue the creative marketing and brand-transformation efforts over the
last six to eight months that broadened the lottery's player base and generated
new sales and profits," said Jones.
Northstar is a consortium of lottery industry vendors Gtech and Scientific
Games, and was paid a total of $85.1 million for fiscal 2012 services.
Background to the reduced net income target
The $757 million net income figure announced Monday by the lottery is the key
figure used in fiscal 2012 calculations to determine whether Northstar is
entitled to any performance bonuses or is required to provide shortfall payments
to the state. In obtaining the first contract to manage a U.S. lottery,
Northstar committed to reach $851.2 million in net income for fiscal 2012.
However, this net income target was eventually reduced over the strenuous
objections of the Illinois Lottery. Under provisions of the private management
agreement, Northstar initiated a series of letters to the lottery last July, the
first month of fiscal 2012, seeking downward adjustments to PMA net income
targets in an amount of $262.9 million over five years.
Pursuant to the PMA's dispute resolution provisions, a third-party
professional reviewed Northstar's requests. This professional ultimately agreed
with the state on many of its arguments and determined that only $28.4 million
of the $119.2 million sought in fiscal 2012 downward adjustments should stand.
(Only $2.9 million of the $143.7 million sought in fiscal 2013-16 downward
adjustments was allowed to stand.) As a result, Northstar has only been held to
an $822.8 million net income target for fiscal 2012 as opposed to the original
$851.2 million Northstar originally bid.
See figures in right-hand column for fiscal 2012 net income calculation
details.
___
The Illinois Lottery, founded in 1974, has contributed $17.5 billion to the
state Common School Fund to assist K-12 public schools and the Capital Projects
Fund. Lottery players must be at least 18 years old.
[to top of second column] |
Calculation of FY12 net income pursuant to the Illinois Lottery
private management agreement
|
Profit and
loss category* |
FY2012 |
|
Total revenues |
$2,677,124,029 |
|
Total net
prizes |
[$1,632,357,284] |
|
Retail agents'
remuneration |
[$151,054,178] |
|
Northstar
management fee |
[$15,171,000] |
|
Total lottery
expenses |
[$110,693,920] |
|
Employee use
agreement expenses |
[$8,924,020] |
|
Provision for
bad and doubtful debts |
[$2,077,263] |
|
Net income pursuant to the PMA |
$756,846,364
|
*Deductions from total
revenues shown in brackets
___
Profit and loss category details
|
Profit and
loss category |
FY2012 |
|
Sales |
|
|
Draw-based game
sales |
$1,051,153,090 |
|
Instant game
sales |
$1,622,274,957 |
|
Other income |
$3,695,983 |
|
Total revenues |
$2,677,124,029 |
|
Prizes |
|
|
Instant prizes |
$1,142,535,237 |
|
Draw-based |
$516,629,441 |
|
Unclaimed
prizes |
$26,807,395 |
|
Total net
prizes |
$1,632,357,284 |
|
Retail agents'
remuneration |
$151,054,178 |
|
Northstar
management fee |
$15,171,000 |
|
Lottery
expenses |
|
|
Gaming system
operations and communications |
$48,798,000 |
|
Instant tickets |
$21,336,000 |
|
Advertising and
promotions |
$40,130,000 |
|
Additional
rebranding fees paid to Northstar |
$3,275,000 |
|
Adjustment to
lottery expenses due to lower sales |
$2,845,080 |
|
Total lottery
expenses |
$110,693,920 |
|
Total Northstar
payments |
$125,864,920 |
|
Employee use
agreement expenses |
$8,924,020 |
|
Provision for
bad and doubtful debts |
$2,077,263 |
|
Net income pursuant to the PMA |
$756,846,364
|
___
Calculation of FY12 net income
shortfall payment pursuant to the Illinois Lottery private
management agreement
(Calculation reflects net income
target adjustment of third-party professional)
|
Net income
target |
$822,800,000 |
|
Actual net
income achieved |
[$756,846,364] |
|
Net income
shortfall |
$65,953,636 |
|
Net income
shortfall x .50 |
$32,976,818 |
|
Incentive
compensation for performance |
[$12,853,909.20] |
|
Net income shortfall payment to
state |
$20,122,908.80
|
[Text from
Illinois Lottery
file received from the
Illinois Office of Communication and Information] |
