Big names in lottery management hope for N.J. contract

September 06. 2012 1:48PM

By Beth Fitzgerald

New Jersey officials met today with the companies who will compete for the chance to take over the marketing and sales operations of the New Jersey Lottery, which plans to make incentive payments to the winning firm if it succeeds in driving up revenue.

The lottery has raised about $20 billion for education and state institutions since its inception in 1970.

Among the companies represented were Providence, R.I.-based GTECH, a Lottomatica subsidiary that has been the primary vendor of lottery technology to New Jersey since 1984, and provides lottery services in 27 states; Scientific Games Corp., of New York, a global lottery systems provider; United Kingdom-based Camelot Group, which operates the UK National Lottery; and Intralot, a company based in Athens, Greece, that operates in 53 countries.

The lottery is part of the state Treasury Department, whose Division of Purchase and Property has set a Nov. 15 deadline for the submission of proposals from lottery management services companies.

"The state is not privatizing the lottery. It will continue to own the lottery, and state employees will continue to manage its operations," said Treasury spokesman Bill Quinn. He said the state projects outsourcing some functions could increase revenue from the lottery, which would be freed from certain limitations as a state agency: "It can't pay its sales representatives any incentives. It is subject to the appropriations process and sometimes it's limited in the funds it has to spend on new products and the speed with which it can bring them to market. And the expectation is that a management services company could provide a lot of added value in those areas."

The state's request for proposals requires the winning bidder to make an upfront payment of $120 million. Quinn said the lottery is a valuable asset, and the $120 million is a down payment on the on the additional revenues the state can expect to collect over the life of the contract, assuming the contractor succeeds in generating additional revenue growth.

Quinn didn't provide an estimate for how much additional lottery revenue the state might achieve. He said the new manager would have to increase the state's net revenues from the lottery, after operating expenses and prize payouts, in order to get the incentive payments. "If they fail to meet their targets for two years in a row, the state can terminate the contract," he said. "So it is strictly a performance-based arrangement."

The lottery has about 150 employees, and only those who work in marketing and sales will be affected by this outsourcing initiative, Quinn said, adding that the contract with the outside firm "specifically provides that every lottery employee who wants an opportunity to switch over to the management services company must be provided with an interview and must be considered for employment."


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