New Jersey lawmakers are scratching their heads over how the state lottery system, privatized in 2012, could report record sales in the 2015 fiscal year, yet fall short of revenue targets by tens of millions of dollars.
The Senate Legislative Oversight Committee will hold a hearing October 19 on the state’s deal with Northstar New Jersey. The Christie administration gave the firm a 15-year contract to manage advertising and sales for the lottery over objections from Democrats and union members, who pointed out that GTECH, a part owner of Northstar, used lobbying firms with ties to Christie. Northstar New Jersey is headquartered on Brunswick Avenue in Lawrence, in the former state lottery building.
Before privatization, the lottery gave 30 percent of its revenues to other state programs, including colleges, student aid, and psychiatric hospitals. The contract required that Northstar do the same. However, since Northstar took over, the total amount of money funneled to those programs has diminished. An analysis of records by the Record newspaper showed that the lotto would provide about $930 million to programs, down from $965 million in 2014 and the $950 million in 2013, despite record high sales of $3 billion. The report concluded that the company’s $100 million in fees and reimbursements to Northstar were to blame.
The opposite was supposed to happen. The contract specified revenue goals for Northstar, and the company has fallen short of the targets by more than $160 million so far.
Declan O’Scanlon, a Republican representing Monmouth County, wrote a defense of the contract in the Star-Ledger on October 8. O’Scanlon argued that the lottery was a victim not of mismanagement, but of a general decline in lottery sales across the nation due to a lack of large Mega Millions and Powerball jackpots. He pointed to studies by the North American Association of State and Provincial Lotteries that showed that of lotteries all over the country, both privatized and publicly operated, 21 of 24 saw reduced revenue in 2014.
He also said the risk of downturned markets had been transferred to Northstar, and that the company will have to pay penalties if it fails to meet goals.
“Although near-term financial results have not met all of the lottery’s high expectations, substantial investments and support by Northstar should position the lottery network for success over the long-term,” he wrote.