INDIANAPOLIS | The decision to outsource Hoosier Lottery marketing, sales and distribution to a private company is starting to pay off for Indiana.
According to a report presented Tuesday to the State Lottery Commission, lottery ticket sales under GTECH Indiana management topped $1 billion for the first time during the 2014 budget year that ended June 30, and a record $250.7 million in Hoosier Lottery profit is set to be returned to the state.
"I consider this first year to be a huge success," said William Zielke, chairman of the state's lottery governing board. "This contract, from my perspective, worked exactly as it was supposed to work."
Overall, ticket sales grew by $85 million, or 9 percent, to $1.02 billion. Scratch-off tickets saw the largest revenue growth, taking in $702.6 million in 2014, versus $614.8 million the year before.
Colin Hadden, chief operating officer for GTECH Indiana, said he is satisfied the company is on the right track after coming within 1 percent of its 2014 goal, and he is confident GTECH can continue to grow lottery sales in Indiana.
"The trick is bringing new people on and introducing them to the lottery category, particularly when it comes to younger age groups because lottery tends to be an older age group," Hadden said. "When you start looking at it from that perspective there's huge amounts of opportunity."
Hoosier Lottery profits are used by the state to reduce vehicle excise taxes, support state and local construction projects and fund pensions for Indiana police, firefighters and teachers.
Tim Kuehr, the lottery's chief financial officer, said a lack of huge jackpots reduced Powerball sales by $35.5 million, or 25 percent, to $106.6 million, but $23.8 million growth in Hoosier Lottery and Mega Millions sales nearly made up the difference.
The lottery's net income totaled $254.4 million after accounting for game and administrative expenses, short of the $256 million GTECH promised the state.
As a result, GTECH paid a shortfall penalty of $1.6 million to make up the difference.
GTECH will need to grow 2015 ticket sales by $255 million, or 25 percent, to $1.27 billion if the company is to hit its new $320 million net revenue target, otherwise it again will be forced to make a penalty payment to cover the shortfall.
The company receives a bonus if net revenue exceed the contracted amount.
Hadden, GTECH's COO, said that while GTECH closely watches annual revenue results, the company primarily is focused on building the Hoosier Lottery brand and growing sales over the life of its 15-year contract with the state.
"This is a marathon, not a sprint," Hadden said. "We see that there is some significant opportunity out there, we're going to work hard to get it and that's our job."
Illinois privatization not so smooth
By all accounts, Republican former Gov. Mitch Daniels' 2012 deal to outsource Hoosier Lottery operations is running better than Democratic Gov. Pat Quinn's 2011 privatization of the Illinois Lottery.
Quinn last week announced he is cancelling Illinois' 10-year contract with Northstar Lottery Group LLC -- a partnership of Rhode Island-based GTECH and Scientific Games of New York -- after just three years, because the company repeatedly fell short of its revenue targets and resisted paying promised profits to the state.
Sarah Taylor, executive director of the Hoosier Lottery, said the problems at the Illinois Lottery do not affect Indiana lottery operations, in part because the state took efforts to prevent similar issues from cropping up in Indiana.
"The team that originally prepared our contract learned from contractual arrangements in Illinois to craft it to make it well for the Hoosier state, so we are glad about the agreement we have here," Taylor said. "We have had a great first year."