Does privatizing lotteries make any sense?

News clip:
"The temptation for states to cash in also cuts across political lines. In the last 18 months, governors in Democratic strongholds like Illinois as well as Republican-dominated states like Indiana and Texas have all made formal proposals to their state legislatures to privatize their lotteries.

Even in New York, which experts say has one of the best-run lotteries in the country, state budget officials are quietly exploring the concept and have asked JPMorgan and other banks for advice on what a possible privatization might offer the state. ‘‘We’re very early in the process,’’ says one top state administrator who insisted on anonymity because of the discussions are preliminary. ‘‘We’d be foolish not to learn more about it, and we have asked some of the banks for more specific ideas.’’

While cash-hungry states are understandably intrigued by the potential financial windfall from privatizing lotteries, critics say they worry about the possible social consequences. They contend that future growth in lottery revenue, fed by private operators funneling resources into increased marketing efforts and sales outlets, is likely to come from minority and low-income gamblers who already form a disproportionate share of those who play. "

I can’t see privatization helping at all. Every time something is privatized the moderately paid political appointees are pushed aside for truly ravenous “entrepreneurs”. I use quotes because it’s more of a government handout to them than an investment.

And the money doesn’t come from the air. It mostly comes from the poor and the elderly. And the games are rigged to disguise the odds and overstate both the winnings and the amount that ends up as new tax revenue.

Does anyone think rich arab high rollers are playing the lottery? It’s a tax on the poor, and bad enough when the state runs it. Once it’s mechanisms are out of sight, the money will skim away like magic.

It gets the government out of a business it probably shouldn’t be in in the first place. That’s about the only argument I can think of, though it’s a pretty good one.

But yeah, might as well let in the craps tables and slot machines once you privatize the lottery.

I also agree that the backroom deal making and skimming that would go on prior to and after the changeover would make the mob blush.

It’s a dumbass tax. While I kinda object to the state running it on ideological grounds (as well as the majority of state-run programs), participation is purely voluntary. Honestly, if it helps cover up some of the budget deficit, let it stay as is.

It may be true that it is the poor and the elderly who play the lottery in disproportionate numbers but in what way is it actually a tax? It may generate revenue but that doesn’t make it a tax.


A lottery program is an asset.
Selling it to private companies is similar to selling any other state-owned asset.

In general the motivation has been to help budget deficits, and in general this is tantamount to taking out a home equity line to pay off credit card debt without correcting the behaviour which produced the debt in the first place.

For a state that’s desperate to balance its budget, this is one possible easy fix. Sell off your future revenue for a short term bonanza. This is what happens when the electorate will turn on any legislator that dares to raise more revenues with higher taxes.


I don’t see how privatizing the lottery with a one-time sell-off is a good idea in the long-term. How can a state get a good enough price for the asset considering a state is a long-lived entity?

Consider Illinois, the govenor suggests getting $10 billion for it. $4 billion for immedate use; $6 billion would be set aside to generate $650 million a year for 18 years. 2007 expected sales are $2 billion and expected profits are $665 million. Everything constant, in 15 years the Illinois Lottery would generate $10 billion in profits.

So according to the plan, if Illinois actually got $10 billion for the lottery, the plan would solve an immediate budget problem and generate the same revenue for 18 years. After that – nothing. Illinois is 189 years old; what problem does this really solve?

And this is assuming all goes as planned, which many people doubt. It doesn’t seem likely that a private company would buy the lottery for $10 billion in hopes to break even in 15 years. Certainly they would expect to increase the efficiency of the operation, but they would certainly expect to increase sales as well. How much would they have to increase sales to make their return-on-investment worthwhile? Three times sales and break even after 5 years? If that is possible, why wouldn’t the state do it themselves?

Now, I don’t think a state should be running an entertainment business such as the lottery any more than it should be running a video rental chain or liquor chain. But I think if the state only allows a single lottery to operate inside its borders, then it should be state-run and it should be not-for-profit.

Or turn on any legislator that dares to cut services.