Northstar avoids $25m target failure fine to Illinois Lottery
GTECH Corporation and Scientific Games joint venture missed proposed targets by $50m in first year.
Northstar Lottery Group will avoid paying a US$25m fine to the Illinois Lottery for failing to meet profit targets after an independent mediator ruled that actions by the state had hindered the supplier’s growth strategy.
Northstar, a joint venture created by GTECH Corporation and Scientific Games in 2010, fought off stiff competition for the lucrative 10-year contract from UK lottery giant Camelot by predicting higher profits.
It was expected to grow the state’s lottery profits by 10.6% annually over the next five years, generating around $4.8bn in the process. Under the terms of the agreement, Northstar is entitled to a bonus for exceeding targets but must pay a fine if they are missed. And while profits improved last year, they were some $50m short of projections, triggering a clause in the contract which would have seen Northstar pay half the difference.
According to local news source Chicago Business, the Illinois Lottery posted unaudited profits of roughly $775m last year, short of the $825m profit that Northstar indicated when bidding for the contract.
However an independent mediator has ruled that Northstar should not have to pay the fine based upon actions of the Illinois lottery which prevented it from meeting targets. The mediator also said the company is entitled to decrease its profit targets by $55.6m for the year ended 30 June.
The decision, announced by GTECH parent company Lottomatica Group, means Northstar’s penalty for missing targets could be reduced or even eliminated, with the mediator also stating that Northstar could reduce this year’s profit target by $20.2m.
The Illinois Lottery has announced plans to challenge the preliminary ruling, with Illinois Lottery Superintendent Michael Jones telling local press: “The state doesn’t think that it’s done anything to affect Northstar’s ability to deliver the profits that it promised. The point of view of the Lottery is we’re going to vigorously protect the citizens of the state.”
Illinois became the first state to offer online lottery tickets in March, racking up sales of $425,000 in its first five days of operation.
The launch coincided with a record jackpot of $540m in the Mega Millions draw, yet the 80,000 customers who registered to buy online tickets was some way short of the one million players that research suggested are in the state.