Lottery Deal = Guarantees not Gamble

JANUARY 7, 2013 | by NATHAN BENEFIELD, ELIZABETH STELLE

Lottery profits fund programs for senior citizens—but demand for these services is growing faster than Lottery revenue.  The private lottery management agreement recently bid out by the Pa. Department of Revenue would provide the state a guaranteed minimum of $34 billion in lottery profits over 20 years.

Compared to the historic performance of the Lottery over the past 10 years, Camelot's bid would generate an additional $2.3 billion for senior services over the first decade of the agreement.  The commonwealth has the right to renegotiate and seek higher profit commitments after 10 years.   This deal provides an alternative to raising taxes or cutting seniors' programs.

Moreover, the contract specifies the private manager, not taxpayers, would be held accountable if profits don't meet expectations.  Camelot, the winning bidder, already put $50 million down as part of its bid, and will provide another $150 million in cash collateral for the commonwealth to draw from if the company fails to deliver on its profit promises.  In addition, Camelot is offering a $50 million letter of credit if the fund is depleted to less than $50 million at any point during the contract.

Such accountability measures and guarantees are rare in government, and only occur with competitive bidding and a strict, performance-based contract.  In contrast, Lottery profits have been erratic over the past five years, ranging from  a decline of 2.2 percent to growth of 4.9 percent.  A study by the Legislative Budget and Finance Committee found the Lottery missed budgeted sales in four of the last eight years.

Read our latest Policy Memo for more on the lottery management deal.


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