FIRST, LEGALIZE THE VICES…

Illinois Seeks to Privatize Its State Lottery

By JENNY ANDERSON and CHARLES DUHIGG
The New York Times
January 22, 2007

The State of Illinois is seeking to privatize its state lottery system, hoping to attract as much as $10 billion from private investors interested in an operation with 800 retail outlets and 2005 revenue of about $650 million.

John Filan, Illinois’ chief operating officer and until recently its chief budget officer, said private operators would bring a technological and marketing expertise to the lottery system that the government cannot provide.

“This is fundamentally a retail business, and governments are not equipped to manage retail businesses,” said Filan. “Gaming is getting so competitive around the world that we’re worried our revenues could go down unless there is retail expertise to run the lottery.”

The deadline for bids is Feb. 20. Since 1974, according to the state, the lottery has contributed $13 billion to Illinois schools.

But the move to privatize the lottery is raising concern from public advocates.

Prior to the 20th century, almost all lotteries in the United States were operated privately. But a series of scandals involving political corruption rendered private lotteries illegal for nearly 100 years. State lotteries began to come back in the mid 1970s, and in 2005 they took in more than $52 billion, according to the North American Association of State and Provincial Lotteries.

Taking lotteries out of state hands could raise tricky social policy issues, as private operators will be interested in maximizing revenue without the sensitivity publicly elected officials face.

“As a government agency, lotteries are bound by the duty of care that a government has to its citizens,” said Rachel Volberg, director of Gemini Research. “A private operator is not bound by any duty of care, just payments to the government. My concern would be that a private operator would be much more aggressive with advertising, with introducing new products that have addictive potential, and there’s not that responsibility on a private operator to protect private citizens.”

While Illinois officials expect the sale will attract investors, experts say that lotteries are fairly uncertain businesses.

In 2005, executives at the Multi-State Lottery Association, which runs the Powerball lottery, saw revenue drop by more than 15 percent after a record-setting run of winners kept jackpots small. The number of tickets sold increases as jackpots grow progressively bigger.

“Lottery revenues go through a lot of ups and downs, so there’s a lot risk there,” said Russell Sobel, a professor of economics at West Virginia University who has studied the industry. Some lotteries offer fixed prizes, regardless of how many ticketholders win. When popular combinations of numbers become winners – such as 1234, 8888 or 122500, the supposed date of the first Christmas – the number of winning tickets can spiral upwards, said Professor Sobel, reducing a lottery’s profits.

Illinois Governor Rod R. Blagojevich first floated the idea of privatizing the state’s lottery last May, while seeking re-election. At the time, Blagojevich estimated that the sale’s would generate $10 billion, which would fund a four-year school building and education plan. Under his proposal, $6 billion would be set aside to provide the state’s schools with $650 million a year for the next 18 years, roughly equal to what the schools received in lottery income.

At the time, Illinois Republicans charged that the real motivation behind Blagojevich’s proposal was to keep independent state Sen. James Meeks of Chicago from entering the gubernatorial race. Meeks, an influential black leader, had threatened to challenge Blagojevich if education funding wasn’t increased. Following the lottery proposal, Meeks announced he would not run.

Goldman Sachs and UBS are advising the state of Illinois. Mark Florian, a managing director in Goldman Sachs’ municipal finance and infrastructure group, said demand would come from strategic bidders as well as infrastructure funds and private equity funds flush with cash.

Goldman Sachs, which has a $6.5 billion infrastructure fund, will not bid, said Mr. Filan.

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THEN…PRIVATIZE THEM…

(Wait a minute. Haven’t things sort of like gone in one big circle here…? From one bunch of gangster crapitalist entrepreneurs…to another…? You just gotta love that Market Economics a.k.a. theft…Lucky Luciano & Associates would be proud… )