The Journal Gazette
Wednesday, March 16, 2016 4:31 am

Lottery restructures contract, reduces revenue goals

Niki Kelly | The Journal Gazette

INDIANAPOLIS -- A second year of failing to meet target revenue for the state spurred the Hoosier Lottery Commission on Friday to restructure its contract with GTECH Indiana and substantially reduce the goals the company originally promised to meet in the 2012 bidding process.

On one hand, the massive decrease means the state will not reap hundreds of millions in expected revenue during the next decade.

But with GTECH Indiana not hitting its goals the first two years, it is unclear whether that revenue was realistic.

The private vendor also agreed to lower its annual management fee and give the state a one-time lump-sum payment of $18.25 million.

"The (market) assumptions as it turns out weren't valid," Lottery Commission Chairman William Zielke said. "What this plan does is reflect more accurately the marketplace based on their two years of experience, their understanding of Indiana.

"It probably was to their advantage to lower the number. It's to our advantage that we share in the excess when they hit those minimum net income number. This was a negotiation that satisfied both parties."

GTECH's new minimum goal for fiscal year 2016 is $270 million, with an extra incentive goal of $290 million.

By comparison, under the original agreement, the goal for fiscal year 2015 was $320 million and fiscal year 2016 was $365 million.

The commission had the option to terminate the contract, but chose to avoid that "chaos" with a contract addendum. A consultant also shared a presentation showing the Hoosier Lottery has weathered a "jackpot fatigue" better than other states.

Last year about $251 million in lottery revenue was sent to state government. This year the number is expected to drop to $243 million. And that is after GTECH pays a $16 million shortfall payment for not meeting goals.

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