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N.J. Lottery privatization falling short

The group running it fell short of revenue even after it was allowed to reduce its target.

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 short $24 million in the year ended June 30, even after Gov. 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.

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 defied opposition from Democrats and unions representing lottery workers. The sole-bidder contract included a $120 million up-front payment to the state.

"It was a momentary money grab that solved momentary budget issues," said Assemblyman John S. Wisniewski (D., Middlesex).

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

"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.

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

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 L.L.C. 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.

Critics, including a union that protested the planned firings of more than 60 state workers, said New Jersey had no reason to privatize its lottery. Still, Christie said in January 2013 that "privatization is the right way to go."

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

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 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.

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.

"The contract must be reviewed," Assemblyman Gary Schaer (D., Passaic), who is chairman of his chamber's budget committee, said in a statement this week.

In October, Northstar donated $15,000 in computer equipment to the AIDS Resource Foundation for Children in Newark.

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 $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 - a 45 percent increase from the $34.7 million under state control a year earlier.