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Northstar lottery group

ROME, ITALY and PROVIDENCE, RHODE ISLAND (US) – January 19, 2011 – Lottomatica Group S.p.A. announced that the Northstar Lottery Group (Northstar), a consortium in which GTECH Corporation holds an 80 percent controlling interest, has signed the 10-year private management agreement with the Illinois Lottery. Scientific Games International, Inc., a wholly-owned subsidiary of Scientific Games Corporation (Nasdaq: SGMS), holds the remaining 20 percent interest in the consortium. Chicago-based Energy BBDO is supporting Northstar as its advertising and consumer marketing partner. The agreement commenced on January 18, 2011.

Under the agreement, which was previously announced on September 16, 2010, Northstar, subject to the Illinois Lottery’s oversight, will manage the day-to-day operations of the Lottery and its core functions including, among other things, lottery game development and portfolio management; retailer recruitment and training; call center operations; supply of goods and services; subcontractor and vendor selection and management; advertising; branding; and overall marketing strategy. Responsible gaming programs will be embedded throughout these operational processes and core functions.

“Today marks the beginning of an exciting new chapter in the 36-year history of the Illinois Lottery. We welcome our new partners in offering exciting, fun games to lottery players, revenue growth for our retailers, and significant positive returns to good causes in Illinois,” said Illinois Lottery Acting Superintendent Jodie Winnett. “The State of Illinois has been on a four-year journey to establish a management arrangement that would unlock the potential of this valuable and unique state asset. The hallmark of this new private management arrangement is its shared risk-reward structure that focuses significant private-sector resources and marketing and retailing expertise, and provides incentives for profit growth.”

“By leveraging the operational expertise, innovative technology solutions, and local market knowledge of GTECH and Lottomatica, we were able to make a very compelling proposal to the Illinois Lottery to enter into this private management agreement,” said Lottomatica Group CEO Marco Sala. “The integrated offering proved to be a key to our success and demonstrates the capability of the Lottomatica Group of companies to successfully work together to pursue and secure new operator opportunities.”

“The Northstar Lottery Group has developed a business plan to generate approximately $5.2 billion of profit to the State of Illinois over the first five years of the 10-year agreement,” said Northstar Chairman and GTECH President & CEO Jaymin B. Patel. “Our plan is robust and leverages our fully-integrated structure, global lottery experience, solid quantitative analysis, and comprehensive knowledge of the current market and emerging market trends.” Mr. Patel continued, “The major drivers of this growth include retailer expansion and optimization, online and instant game optimization and the introduction of new games, all supported and driven by a comprehensive re-branding program.”

“We are very excited about this opportunity and firmly believe that the Illinois Lottery, operating under this innovative new model, has the potential to become one of the top-performing lotteries in the United States in terms of sales and returns,” stated Scientific Games Chairman and CEO Lorne Weil.

“Northstar will increase the Illinois Lottery’s sales from $2.2 billion in its fiscal year ended on June 30, 2010 to more than $4.5 billion in 2016, and responsibly grow Lottery Net Income from $665 million in 2010 to $1.1 billion in 2016,” said Northstar CEO Connie Laverty O’Connor . “We also recognize that the greatest asset of any lottery is its trusted brand. We will evaluate the Illinois Lottery’s brand equity with a goal of shaping its public image to reinforce and enhance the traditional values of transparency, integrity, responsibility, combined with innovation, energy, fun, entertainment, and market responsiveness,” continued Mrs. Laverty O’Connor.

To the extent that the net income earned by the State each year exceeds the base net income levels for such year set by the State and published during the procurement, Northstar will earn incentive compensation that is awarded based on various levels of performance, up to an annual maximum of 5 percent of the actual net income earned by the State.

Northstar’s proposal guaranteed a minimum profit level for each of the first five years of the agreement, commencing with the State’s fiscal year ending June 30, 2012. The incentive compensation that Northstar may earn could be reduced by a shortfall payment in the event Northstar’s performance does not achieve the levels it has guaranteed. Should the actual net income earned by the State in a given year be less than what Northstar guaranteed, but exceeds the base level net income set by the State for such year, the shortfall payment for such year will comprise 50 percent of the difference between the net income guaranteed by Northstar and the actual net income earned by the State. Should the actual net income earned by the State in a given year be less than the base level net income set by the State for such year, the shortfall payment for such year will additionally comprise 100 percent of the difference between the base level net income goal indicated by the State for such year and the actual net income earned by the State in such year. The annual incentive/shortfall payment may not exceed 5 percent of the net income for such contract year.

Additionally, Northstar will earn a yearly management fee for its personnel costs and other overhead expenses. There are also costs that Northstar will assume under the private management agreement that were borne by the State under the previous lottery operating model. These costs, which include GTECH and Scientific Games supplier fees, will be reimbursed to Northstar by the Illinois Lottery on an annualized basis.

Related press release dated September 16, 2010.

Northstar lottery group ROME, ITALY and PROVIDENCE, RHODE ISLAND (US) – January 19, 2011 – Lottomatica Group S.p.A. announced that the Northstar Lottery Group (Northstar), a consortium in which