Illinois Lottery Director Michael Jones

When he was hired by Gov. Pat Quinn in 2011 to run the Illinois Lottery, Michael Jones says he quit working for a Chicago company that conducts research on gaming trends, and left behind all ownership and financial interest.

But the Better Government Association and FOX 32 found Jones continued to try to drum up business for the firm long after taking over as the $142,000-a-year director of the state Lottery system – raising questions about Jones’ motivations and whether he crossed an ethical line.

The BGA/FOX investigation determined that he not only asked his counterpart in Texas to give his old firm – now called Independent Gaming Research, or IGR – a chance at a contract. Jones also may have played a role in IGR being hired as a six-figure consultant for the company handling the day-to-day operations of the Illinois Lottery.

If you don’t see the video above, click here and watch it on FOX32.

In an interview, Jones said his intentions were totally pure; he was simply speaking up for a local firm that does a good job. He personally stands to gain nothing, he added.

“It certainly wasn’t an ethics problem, because I have no ownership of the company, and there was no quid pro quo,” Jones said.

Either way, invoices obtained by the BGA and FOX show IGR has received $168,250 in taxpayer money to work on research projects related to the Illinois Lottery within the past two years.

The seeds for this were planted several years ago. State government, which includes the Illinois Lottery and falls under the domain of the governor, decided in 2010 to outsource the Lottery’s day-to-day operations.

Jones – then in the private sector – put together a team to make a bid for the private management contract, but later dropped out of the running.

In January 2011, the contract was formally awarded to Chicago-based Northstar, a partnership between two major lottery companies: GTECH, a subsidiary of Italy-based Lottomatica; and New York-based Scientific Games.

Northstar started work in July 2011.

In October 2011, Jones was named by Quinn to run the state Lottery – after Jones was recommended by state Senate President John Cullerton (D-Chicago), Cullerton’s office confirmed. Jones describes Cullerton, whose legislative chamber has to approve such appointments before they formally take effect, as a “good friend.” (Jones also worked as Lottery director in the 1980s under then-Gov. Jim Thompson.)

By November 2011 Jones was on the job, and urging Northstar officials to rescind a research contract, worth more than $50,000, that was about to be awarded to an out-of-state company, according to interviews, and emails obtained by the BGA and FOX from a source who did not want to be identified publicly. Instead, Jones recommended the deal go to IGR, then called Independent Lottery Research, or ILR, which Jones had just exited, according to the emails.

Northstar officials expressed concern about scrapping the deal, but within days they agreed to hire Jones’ old firm, according to interviews and emails. Because the deal was going to be worth more than $50,000, Jones was required to sign his name giving final approval.

(As part of its arrangement, Northstar has wide discretion on how to run the Illinois Lottery, but Jones must approve vendor payments exceeding $50,000. Jones said he’s allowed to veto large-impact decisions, such as Northstar’s push to create a keno-type game.)

Before the contract with Jones’ old firm could be fully executed, the governor’s office urged it be scrapped out of concern that Jones’ involvement could constitute a conflict of interest, according to interviews.

Jones said he agreed the contract created an “optics” problem, and the arrangement was dead as of Nov. 17, 2011.

Within several weeks, however, Jones’ former company changed names, from ILR to IGR, and was doing work for Northstar parent GTECH, conducting research to gauge the public’s opinion on daily Illinois Lottery games, as well as Internet ticket sales, according to interviews, and copies of internal invoices provided by the same source who provided the emails.

On Dec. 21, 2011, IGR started billing Northstar and GTECH for the work involving the Illinois Lottery, according to the invoices. Overall, IGR was paid $168,250 in taxpayer money from December 2011 through November 2012, records show.

Because the bills came in increments smaller than $50,000, Jones didn’t sign off on them.

Jones confirmed that he spoke up for his old firm a number of times, but said he didn’t demand that Northstar hire IGR.

“I couldn’t direct them, I couldn’t force them, I couldn’t make them do anything, they’re the private manager,” Jones said. “I said, ‘Why don’t we keep the money in Illinois? Why wouldn’t we hire an Illinois company to do research on the Illinois Lottery?’”

A representative from Northstar parent company GTECH released a statement indicating that Northstar felt pressured by Jones to hire his old company – and that’s why IGR was brought on board.

As Lottery director, Jones “expressed a high degree of confidence in the capabilities of IGR/ILR,” GTECH senior vice president Bob Vincent said in the statement. “GTECH had not previously done business with those companies. He strongly encouraged GTECH to use IGR/ILR for various marketing research projects for the Illinois Lottery. The primary reason GTECH hired ILR/IGR was because of Director Jones’ urging.”

Jones countered: “I didn’t ‘strongly encourage’ them to do anything. [Vincent] doesn’t have any proof. He’s just saying it.”

However, something that may undercut Jones’ contention that he doesn’t really have the power to make demands of Northstar: Jones holds tremendous leverage over Northstar’s long-term fortunes.

Since taking over, Jones and Northstar have been at odds, quarreling over revenue benchmarks Northstar is supposed to meet as part of its agreement with the Illinois Lottery. If those benchmarks aren’t met, the state is allowed to void the 10-year contract with Northstar.

Jones is part of that decision-making, he confirmed, adding the governor would have the final say.

“Stay tuned,” he said, when asked whether the state will try to oust Northstar, whose take-away is massive.

The state pays Northstar a $15 million yearly fee to run the Lottery. In addition, a cut of sales goes to Northstar’s parent companies. Last fiscal year, that cut amounted to about $84 million.

In return, Northstar pledged to boost stagnant Lottery sales significantly, translating into an additional $1 billion or more for state coffers during the first five years of the arrangement alone.

Revenues indeed have increased since Northstar took over, but not as much as originally projected, which is at the heart of the simmering dispute between Northstar and Jones.

The Illinois Lottery sells tickets for jackpot games such as “Lotto,” several daily draw games and dozens of scratch-off instant tickets.

Meanwhile, this wasn’t the only time that Jones, while Lottery director, tried to corral business for his former private-sector colleagues, the BGA and FOX determined.

This past January, Jones used his government email to ask Texas Lottery Director Gary Grief to “ensure that Independent Gaming Research receives a copy of the [project overview] and has a chance to bid” on a Mega Millions research project, according to emails obtained under Texas’ open records law.

Mega Millions is a multi-state Lottery game run by Grief. He didn’t return messages for comment, but IGR didn’t win the contract, said Matthew Smith, Jones’ former business partner who still runs IGR.

Jones said trying to generate business for his former company – Smith confirmed that Jones has no financial stake in IGR – is the right thing to do.

“I think it’s something any Illinoisan should do to try to generate economic development and jobs in our state,” he said.

Brooke Anderson, a spokeswoman for the governor, said Quinn has “zero tolerance for any conflicts of interest or abuse of state ethics laws,” but added that no violations were found with Jones following an internal review.

This article was written and reported by the Better Government Association’s Patrick McCraney, and FOX 32’s Dane Placko. They can be reached at (815) 483-1612 or pmccraney@bettergov.org.