Lottery Contract Could Make Everyone a Winner

The lottery is on the minds of those in Harrisburg this week, but it has nothing to do with the $656 Mega Millions jackpot won by three lucky ticket holders last week. On Monday, Gov. Corbett announced the administration is considering outsourcing the management of the Pennsylvania Lottery to a private company. Requests for Qualification (RFQs) are due May 1, and there are a lot of questions about what this means for the budget, revenues and the lottery’s more than 230 employees.

Based on the experience of Illinois—the only other state lottery to completely privatize management operations—we can draw a couple conclusions.

Contracting out services does not mean current workers will lose their jobs. In Illinois, all the collective bargaining arrangements remained in place. Northstar intends to retain all 170 current lottery employees and has announced its intention to hire an additional 100 private sector employees.

The private sector can guarantee and secure revenues. Illinois awarded Northstar a lottery contract in fall 2010 guaranteeing $4.8 billion in revenues by 2016—a more than $1 billion increase over projected revenues under state management. Guaranteed revenues protect the state from risk in down years and guaranteed profit-sharing ensure favorable ratios in boom years. As long as the contracts are performance-based, including penalties for failing to raise revenues, the state benefits.

The Pittsburgh Post-Gazette gave Corbett’s hunt for more funding a ringing endorsement. But more important than finding more revenue is returning state government to its core functions. Of course, the devil is always in the details so a private management agreement on the Pennsylvania Lottery may or may not make sense based on the response to the RFQ.  But if the Commonwealth does contract with a private company to run its Lottery, we will be one step closer to ending “Yellow-Pages” government.