N.J. lottery misses revenue goal under private manager

Three months after Illinois declared the first privately run U.S. state lottery a failure, New Jersey’s similar experiment is faltering, endangering a program that supports schools and the disabled.

Northstar New Jersey Lottery Group’s revenue fell $24 million short in the fiscal year ended June 30, even after Gov. Chris Christie let the company cut the target. Lottery collections, the state’s fourth-largest revenue source, were down 9.2 percent from July 1 through Oct. 31. The forecast calls for annual growth of 7.4 percent.

New Jersey was the third state after Illinois and Indiana to bet that outside marketing and sales experts could tap hidden lottery riches.

Christie, a second-term Republican considering a 2016 run for president, said in 2013 that a private operator would help the state as tax collections fell short, and he defied opposition from Democrats and unions representing lottery workers. The sole-bidder contract included a $120 million upfront payment to the state.

“The decision to privatize the lottery was rushed; it was done with a great deal of secrecy and there wasn’t enough time for the Legislature to legitimately weigh in,” said Assemblyman John Wisniewski, a Sayreville Democrat. “It was a momentary money grab that solved momentary budget issues.”

Kevin Roberts, a spokesman for Christie, referred questions about the lottery to the state treasurer’s office.

“This is a 15-year contract that should not be viewed through the prism of one year’s performance as a measure of success or failure for the entire contract,” Joseph Perone, a spokesman for the treasury, said in an e-mail.

Gtech Corp., one of the three partners managing New Jersey’s lottery, has a “long list of accomplishments” since the contract began in mid-2013, Angela Wiczek, a spokeswoman, said in an interview.

Illinois and Indiana

Illinois Gov. Pat Quinn, a Democrat defeated this month by Republican Bruce Rauner, in August ended a contract seven years early with Northstar Lottery Group LLC because of “serious concerns.” Northstar, a partnership that included Gtech, a Rhode Island subsidiary of Italy’s Lottomatica Group SpA; and Scientific Games Corp., missed revenue targets for three straight years.

Indiana fared better with Gtech, which it signed to a 15- year contract in 2012. While it fell $1.6 million short of the fiscal 2014 goal, Gtech delivered record revenue of more than $1 billion.

Christie, 52, came to office in 2010 saying New Jersey could save at least $210 million a year if businesses handled such services as prison meals and toll-road collections.

When he turned to the lottery, critics, including a union that protested the planned firings of more than 60 state workers, said New Jersey had no reason to change its business. Still, the governor said in January 2013 that “privatization is the right way to go.”

Three months later, Christie’s administration hired Northstar New Jersey, a partnership of Gtech, Scientific Games and the Ontario Municipal Employees Retirement System.

Post-hurricane boom

The company pledged to outdo government’s performance estimates by at least $1.42 billion over the life of the contract. New Jersey’s lottery provides about $1 billion annually for more than a dozen programs, including some for education, veterans and chronic-care hospital patients.

For fiscal 2013, the last year under full state control, the lottery had ticket sales of $2.82 billion, according to its annual report, and produced a record $1.08 billion for services, the sixth-straight year of higher contributions. It also had a new slogan: “Jersey Strong and Jersey Lucky,” a reference to recovery after Hurricane Sandy.

Northstar took control Oct. 1, 2013. In its first four months, it added 152 ticket retailers, for more than 6,500 outlets. It also has attracted followers on social media, generated “many press releases” and introduced more instant games, according to meeting minutes of the state lottery commission.

“We’re very happy with the partnership we have with New Jersey,” Gtech’s Wiczek said.

Lottery’s largesse

Mollie Cole, a spokeswoman for Scientific Games, didn’t respond to an e-mail and telephone call seeking comment on New Jersey performance. Sarah Brennan, a spokeswoman for Northstar New Jersey, didn’t respond to an e-mail and voice-mail message.

“The contract must be reviewed,” Assemblyman Gary Schaer, a Democrat from Passaic who is chairman of his chamber’s budget committee, said in a statement today. “The Christie administration’s continued failure to meet its own revenue projections puts the state at risk in meeting its budgetary obligations.”

In October, Northstar donated $15,000 in computer equipment to the AIDS Resource Foundation for Children in Newark, a nonprofit group that provides services to youngsters who have lost a parent.

“A significant pillar of Northstar NJ’s success is its commitment to the community and corporate social responsibility,” the company said in a news release.

Sandy blamed

The operator also donated to campaigns. Two of the three partners have contributed to the Republican Governors Association, where Christie was chairman for a one-year term that ended this month. In 2013, Gtech gave $101,800 and Scientific Games gave $76,000, according to the group’s disclosure forms.

Northstar spends more in general than the state-run system did. Administration costs for the year ended June 30 were $50.3 million, according to treasury information. That was a 45-percent increase from the $34.7 million under state control a year earlier.

At a public meeting a year ago, Carole Hedinger, the lottery’s executive director, said fiscal 2014 sales were strong, though the budget goal was “very high and will be difficult to meet.”

The Christie administration agreed. On Jan. 17, the treasury approved Northstar’s request for a “downward adjustment” to the income target “as the result of Superstorm Sandy,” according to a contract amendment.

That storm struck 11 months before Northstar took over the lottery.

“While Sandy had a palpable impact upon people and places along the Atlantic shoreline, it resulted in other adverse effects that were less obvious,” said Perone, the treasury spokesman. “Sales of Pick 3, Pick 4, Pick 5, Pick 6, PowerBall, MegaMillions and Instant tickets were depressed in Sandy’s aftermath.”

Assemblyman Patrick Diegnan, a South Plainfield Democrat, said that’s a lame excuse, given the lottery’s record results in the months after the storm.

“It doesn’t make any sense,” said Diegnan, who sponsored a bill vetoed by Christie that would have made lottery privatization subject to legislative approval. “The facts contradict their position.”