 "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] |
