Pennsylvania Announces Plans to Move Forward with Lottery Privatization

Following up on this post on state lottery privatization a few weeks ago, yesterday the Commonwealth of Pennsylvania announced that it plans to move forward with a bidding process covering the private management of the state lottery (a la Illinois).

From the Central Penn Business Journal:

The Pennsylvania Department of Revenue is moving forward in a process to privatize the day-to-day operation of the Pennsylvania Lottery, enlisting its current machine operator and scratch-off vendor to assist in the search for management firms.

The state sent out a request in April for qualified companies. The response since then convinced the department, which oversees the lottery’s programs, that moving forward with the process would benefit the state, it said Tuesday in a statement.

The department is refusing to release the number or names of companies it’s talking to in the process ahead of bidding, holding that confidentiality will better serve competition, spokeswoman Elizabeth Brassell said.

The state will continue to own the lottery and any management contract would require the company to demonstrate it will increase lottery revenue to benefit programs for older Pennsylvanians, according to the department.

[…] The state’s instant ticket and scratch-off game vendor, New York-based Scientific Games Corp., will be a consultant in the management firm search. If the state executes a management agreement, Scientific Games will continue as the lottery’s exclusive supplier of vending and technology services until December 2018, per its contract. A second contract ends in August 2017.

Scientific Games has not submitted its qualifications for the management contract and will not bid on such a contract because of its consulting role with the state in this process, the company said in a statement.

More details are available in the Department of Revenue’s press release.

This seems like a sensible pursuit, as Illinois expects to receive approximately $1 billion in additional, net lottery revenues to the state over the next five years under their private management contract, relative to what the lottery projected under its own in-house operation. In an ideal world, this sort of commercial enterprise should be a stricly private sector function. But under federal law, states are the only entities allowed to operate lotteries, and full divestiture—or even a long-term lease—have been taken off the table as policy options for states. So Illinois pioneered the next best, feasible thing: hiring a private manager to run the enterprise like a real business, with all of the marketing, etc. bells and whistles that are not a core competency of government.

More to come as this develops, both in Pennsylvania and elsewhere. In the meantime, for more on the privatization of state lottery operations, see my article in Reason Foundation’s Annual Privatization Report 2011, released last month.