Profit shortfall

Profit shortfall

Unkept promises have the private managers of the state lottery in trouble.

The Illinois State Lottery makes a lot of money, but not as much as its private-sector managers promised when they won a state contract to take over the program four years ago.

As a consequence, there's talk among legislators about what action, if any, they should take.

Senate President John Cullerton has said he's "very disappointed" with the performance of the Northstar Lottery Group. State Rep. Jack Franks, D-Marengo, has urged Gov. Pat Quinn to fire Northstar. Quinn has yet to take a position on the matter, although one of his representatives has said the governor expects Northstar to fulfill its contractual requirements.

Northstar was selected to become the state's first private manager of the state lottery after a controversial bidding process. Since then, however, the company has sought to negotiate modifications to its contract requirements and failed to meet sales projections.

Northstar CEO Timothy Simonson, however, defends his company's performance, noting that it has increased sales at an annual rate of 12 percent. That increase is much higher than the average 3 percent annual increases the lottery achieved under public management.

Nonetheless, sales and promised payments to the state have fallen short of the company promises. For instance, Northstar promised total sales of $3.5 billion and net revenue of $980 million for the current fiscal year, but it's expected total sales will be roughly $2.6 billion and state revenues about $760 million.

The company already has paid many millions of dollars in penalties to the state and is fighting the state over how net revenues are calculated.

It could be that there is a management problem here that needs to be addressed. Perhaps shifting to a new private manager would resolve the problem. Then again, sales are up substantially, so maybe the real problem is Northstar being unreasonably optimistic about the size of the lottery marketplace.

If so, it would not be the first time that gambling advocates — buying a lottery ticket is a form of gambling — have beguiled state officials with promises of a new revenues that have not materialized. There are, after all, only so many people playing games of chance.

Further, when gambling options like the lottery, video gambling, casinos and horse racing are available the competition for the gambler's dollar can be intense.

The fault may not be so much in Northstar as it is in our elected officials' naive willingness to believe that gambling revenues can spare them tough decisions on taxes and spending.

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