Questions hang over Illinois Lottery deal
By Greg Bishop
Illinois News Network
Concerns about transparency and the sole bidder’s financial conditions are the final hurdles in the years-long process of finding a new private manager to run the Illinois Lottery.
Despite Gov. Bruce Rauner terminating a Pat Quinn-era contract with private lottery manager Northstar in 2015, the Illinois Lottery is still under Northstar’s management. That’s after reported problems such as revenue coming in below targeted goals and questions about transparency.
Camelot Illinois, a subsidiary of a British gaming company, was the only bidder officially announced last month. If the deal is finalized, Camelot would replace Northstar over a six-month period, lottery officials said.
One protest was filed about the proposed Illinois lottery deal citing substantial redactions, and nothing can move forward until that’s resolved by the state’s procurement officer. At the same time, unredacted notes from an evaluation committee show concerns about the single bidder’s finances.
Lottery officials said only one protest came in before Friday’s protest period deadline. That protest, provided by lottery officials, said substantial redactions in public documents prevent public scrutiny and that the redactions fall outside the state’s Freedom of Information Act exemptions.
“Allowing the redactions to stand would render the most salient details of public contracts [their value, deciding parties, basic provision] confidential,” protester Adam Cook of Springfield wrote. “Attempting to hide financial bonuses and penalties as proprietary information mocks the premise of public contracting and invites corruption – effectively dismantling the regulated procurement process and shielding state vendors from even cursory scrutiny.
“In this instance, the state and the bidder have concealed vital information the public needs to assess the propriety of this contract award and violated their most basic disclosure provisions,” Cook wrote.
Cook is looking to hold off contract finalization “until all financial terms and bid evaluators have been disclosed and a reopened public protest period has been completed.”
Lottery officials have said the deal can’t be finalized until the protest is resolved by the procurement officer.
Rauner said Friday his administration is following procurement law, even though he also said the law is broken and limits opportunity.
“We’re following a procurement process,” Rauner said. “We’re following the rules. The law is we cannot discuss it right now. We look forward to discussing it more in the future.”
But Rauner did say it was a good deal for Illinois.
“We hope and believe that we can come up with a lottery manager that will save taxpayers money, as well as create more tax revenue by expanding the lottery system,” Rauner said.
State Rep. David McSweeney, R-Barrington Hills, said Rauner can’t promise taxpayers savings in the deal.
“I have nothing against Camelot,” McSweeney said. “But I don’t know if they’re the best. … Competition is good and when we only end up with one bidder, that’s a problem. And when you end up with one bidder and you don’t make everything transparent, that makes things worse.”
McSweeney said Camelot’s proposal should have been scrapped and the process reopened to ensure more competition.
Illinois was the first in the nation to have private management of its lottery by law. The first private manager was hired on in 2011. Three companies bid on the private management of the lottery then, including Northstar and Camelot. Northstar was excluded from responding to the most recent bid.
Illinois published a Request for Proposal (RFP) in July 2016, the same time it published a Significant Subcontractor RFP for draw game services, instant tickets services and iLottery/mobile services. Twelve sub-contractor RFPs were submitted, but only one new manager proposal was submitted.
Camelot turned in 40 boxes of documents as part of the bidding process and said it was committed to transparency.
The public inspection file provided by the Illinois Lottery was thousands of pages and had over 2,350 redactions, according to a redaction log.
A section in the documents about whether Camelot Illinois or its parent company would fulfill financial commitments, including filing shortfalls, was redacted. Proposed operating expense allowances were redacted, as were the amounts of tiered bonuses for exceeding profit levels.
The reasons for the redactions range from “secret” or “confidential,” to “personal,” to something that could cause competitive harm.
However, both the lottery and Camelot said they will undergo regular audits and publicly release annual reports to ensure transparency and support corporate responsibility.
Among the documents were five score sheets from five unnamed evaluation committee members. Their names were redacted. The worst-scored sections were for Camelot’s financial strength and investment capability.
Part of the notes sections of each individual score sheet was redacted, but one committee member did write, “the company has low liquidity outside of the [parent company’s] pension fund.”
Another unnamed scorer noted Camelot’s parent companies have negative net worth due to intercompany debt.
“Based on the lack of liquidity the company shows,” the scorer wrote, “it is expected their investment capability would also be low.”
“It appears the Respondent is relying solely on a performance bond to support its financial obligations under the RFP,” the scorer wrote. “Very low to negative liquidity is also a concern.”
Another scorer noted there isn’t any outstanding litigation that jeopardizes Camelot’s finances, but that the company has a “minuscule net worth ($1M). Camelot North American has operated at a loss past 3 years.”
“[I] am not convinced these provisions will be enough to cover a potential transition or equipment failure,” said a fourth member of the evaluation committee. “Camelot’s low net worth and profitability add to my concerns.”
Overall, Camelot scored a 4.6 out of 8 for financial strength and investment capability.
On other issues, one scorer said Camelot’s “success marketing the lottery in other jurisdictions and player growth show they have the experience necessary to expand player base and play frequency.”
Camelot Illinois’ parent company has operated in the United Kingdom, California, New York and other jurisdictions.
There also was a recent security breach of player data in the UK, which one scorer said, “raises questions.”
“History of new or renewed contracts speaks to some level of compliance,” one scorer wrote, “however simple research shows that there have been instances, though mostly minor, of compliance issues. Fines levied in the UK for improper operation including posting the wrong draw results online, incorrect calculations of jackpots and [in 2009] paying out a fraudulent claim.”
Camelot’s overall scoring by an anonymous evaluation committee came out to about a 57 percentile, or 1,383 points out of 2,440, with the lowest scoring in categories about financial strength and investment capability.
Camelot Illinois is headquartered in Chicago and will employ 106 people.
Lottery officials have said aside from Illinois, a private manager is used in two states, Indiana and New Jersey, and they’ve each had similar problems of missed revenue projections and transparency.
Since 1985, the lottery said it has contributed more than $19 billion to K-12 education. It also has raised funds for infrastructure projects, veterans’ services, Special Olympics and the fight against diseases like breast cancer, AIDS and multiple sclerosis.