Unanswered Questions: In the Rush to Privatize the Pennsylvania Lottery, There Is Still a Lot We Don’t Know

Authors: 
Michael Wood
Authors: 
Stephen Herzenberg
Publication Date: 
December 13, 2012

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Overview

A plan to privatize the management of the Pennsylvania Lottery would generate little cost savings or income growth for the commonwealth but would likely deliver a big payoff with little risk to the private company bidding on the job. 

The Corbett administration is expected to make a decision by the end of the year on a bid to operate the lottery from Camelot Global Services, released publicly on November 20, 2012. The rushed timeline is a concern in and of itself but not the only one:

  • The contract has drawn only one bid, raising concerns about whether the commonwealth is getting the best deal it could. 
  • The profits promised by Camelot are no greater than the rate of inflation over a 30-year period, raising the question of whether the current state-run system could do just as well or better.
  • With Camelot’s modest profit commitments, the potential loss of revenue over the time period in fees paid to the contractor likely outweighs any potential benefits of the deal.
  • Few states have privatized the lottery so there is little experience or evidence to draw on to assess the funding promises Camelot is making.
  • The manager of the state’s privatization efforts, Greenhill & Co., appears to have a conflict of interest: It coordinated the sale of Camelot to its current owner, and Greenhill’s contract with the commonwealth is reportedly structured to pay at least $3 million if a privatization deal is reached. 
  • Compared to other state lotteries, the administrative costs in Pennsylvania are already quite low. It is unclear what value the contractor would bring to the lottery, and how much the lottery would suffer from a loss of institutional knowledge that exists in the state-run system.

These shortcomings matter because the Pennsylvania Lottery brings in $1 billion a year in funds that almost exclusively support services for senior citizens. Pennsylvania's population is aging, creating a growing demand for these services, including popular prescription drug and transportation programs for seniors. If Camelot underperforms, Pennsylvania seniors are the ones who will pay the price. 

This deal will turn over control of the lottery to a private company for an entire generation. Rushing into a bad deal in the name of privatization is poor stewardship of public assets, shortchanging Pennsylvanians not just today but for years to come.

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The Keystone Research Center (KRC) is a nonprofit, nonpartisan research organization that promotes a more prosperous and equitable Pennsylvania economy. Stephen Herzenberg is an economist and KRC’s Executive Director. Michael Wood is the Research Director for the Pennsylvania Budget and Policy Center, a project of KRC.