The Hidden Concerns Behind Northstar’s Firing

Northstar Lottery Group, the company Gov. Pat Quinn chose in 2010 to be the first private entity in the country to administer daily Lottery operations, has been fired.

Local media have chronicled the company’s failure to meet project revenue targets each of the past three years. (In his article about the events that led up to the “divorce”, Crain’s Chicago Business reporter Greg Hinz wrote that “the proverbial final straw may have come last spring, when reports came out that the firm was running $716 million short of its revenue target nine months into fiscal 2014.”)

But all the coverage of Northstar’s underperformance and of the increasingly insistent calls by Rep. Jack Franks, D-Marengo, to sever ties with the company have missed two aspects of the privatization process that raises unsettling questions about whether the contract should have been awarded at all.

Natalie Craig, managing editor of the Columbia Chronicle, caught the first one.

In an article posted shortly after the news broke about Northstar’s dismissal, Craig broke the news that that the Lottery Control Board, an independent advisory group, violated Illinois Lottery law each year from 2009 to 2012 by failing to hold the legally required amount of meetings.

(Full disclosure: Natalie is a student in the investigative reporting class I’ll be team-teaching this fall. Along with colleagues, I helped edit the piece.)

For those who are keeping score, that time span covers the years during the privatization process as well as the first 15 months of Northstar’s administration-a period highlighted in the following YouTube video featuring Chicago Bulls small forward Jimmy Butler.

Craig explains that the board is an advisory body composed of five members which advises the Lottery superintendent and the director of the Department of Revenue on lottery operations. It’s also responsible for advertising and promoting the Lottery.

It’s required by law to meet four times per year.

A Chronicle analysis of 10 years of board minutes revealed that it met or exceeded the number of meetings every year from 2004 to 2008.

In 2008 the group discussed the issue of privatization during one of its six meetings.

Board member Jonathan Stein said privatization would provide a short-term solution for the state’s financial problems, but would hurt the state’s financial return in 10 years, Craig wrote.
Because of this, Stein opposed the state’s moving toward privatization.

Those were the last recorded words about privatization by a body that’s designed to be the people’s voice.

In 2009, the board met three times, and only once with a quorum.

In 2010, it met just one time, early in the year, and then not again until late 2012.

“As a result, citizens did not have a critical form of legally required input on one of the most consequential decisions in lottery history,” Craig wrote.

Quinn’s office declined to respond to numerous calls from Craig about the impact of this legal violation.

Attorney General Lisa Madigan’s office was similarly silent about the consequences of the board’s failure.

But John Kindt, an emeritus professor emeritus of business administration at the University of Illinois, Urbana-Champaign, was far more forthcoming.

“The situation doesn’t pass the smell test,” he told Craig.

Another little-discussed component of the privatization process also had a questionable odor: the actions of Northstar’s parent companies GTech and Scientific Games.

The proverbial mother and father of the outfit Quinn hired and then fired are each behemoths in the global lottery industry in their own.

The companies are two of four Platinum sponsors of the World Lottery Association, a trade group that has helped boost Lottery sales across the planet from $227 billion to $284 billion in the past five years, according to the World Lottery Almanac.

In 2007, Bruce Golding of the Journal News detailed GTech’s long history of scandal around the globe around the globe.

“Bribery allegations led a co-founder to quit his job as chairman. Its lobbyists have run afoul of the law in several states, including New York,” Golding wrote. “Former government officials have received lucrative consulting contracts. And in summer 2006, an investigation in Texas found that the company, GTECH Holdings Corp., doled out tens of millions of dollars – some of which went to foreign lottery officials – to expand its business in South America, Europe and the Caribbean.”

In a similar vein, Scientific Games was linked to one of North Carolina’s biggest political scandals, involving payments to then-Lottery Commissioner Kevin Geddings.

The bigger point is that even if the companies had sterling records, a strong argument could be made that their corporate child should not receive a dime of public money.

That’s because the two companies and former arch-rivals, which control the vast majority of the instant ticket market in the United States, bonded together to bid for the contract Quinn ultimately awarded to Northstar.

In another industry, this would would be like Apple and Microsoft forming a smaller company and receiving millions and millions of public dollars.

Like Kindt said about the Lottery Control Board, it doesn’t smell right.

At all.

Hinz quoted Quinn spokesman Grant Klinzman as saying the state is finalizing a path to move on, improve profits and increase funding for education and economic development across the state.

But answering the troubling questions raised by Craig’s revelations about the Lottery Control Board and the awarding of a major public contract to the corporate child of two lottery titans should be a prerequisite before that forward movement occurs.

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