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A Bad Gamble: Pa. Lottery Privatization

Government and government-created entities like the Pa. Lottery must become entrepreneurs, according to political expert G. Terry Madonna

By G. Terry Madonna & Michael L.Young

“A roll of the dice” one would-be wit called it. Others have described it in considerably less family friendly terms. But, however, described, it’s described a lot. Indeed, it’s been widely reported nationally as well as across Pennsylvania.

The Corbett administration intends to turn management of the Pennsylvania lottery over to the British firm, Camelot Global Services. “Privatization” of the operation of the state lottery is about to become a fact, subject to legal reviews by the attorney general,  the state treasurer and a court challenge by AFSCME, the union representing lottery employees.

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Not surprisingly, turning the lottery over to a British firm has been controversial. Supporters of Corbett’s plan cite the money it will save, the expected profits it will return and the efficiencies it will produce. Opponents bewail the Pennsylvania jobs that will be lost, the lack of transparency that characterized the awarding of the contract and the possible illegality of the management change.

Both supporters and opponents, however, seem to be missing the real issue. In debating the fine points of the deal, they are playing Nero, fiddling while Rome burns. The point both sides miss so completely is that neither the lottery as it exists, nor Corbett’s proposed plans, are really good ideas.

Privatization never worked as well as its proponents argued. Outsourcing and downsizing bring as many problems as they solve. In fact, if we are ever to solve the modern problems of fiscal solvency, massive infrastructure needs, and unprecedented challenges to education, we won’t do it by zombie like application of yesterday’s techniques to today’s problems.

It’s a cliche, but a good one--we must begin to think outside the box.  And one way to do that is to solve problems in government as they are solved outside government-- not inflexibly or bureaucratically, but with imagination and creativity.  To the point: government and government created entries must become entrepreneurs.

As it turns out, Camelot Global Services, now only a few short steps from managing the Pennsylvania lottery, offers us a virtual blue print for doing just that. Camelot is a British company, which operates Britain’s national lottery and advises lottery operations in Illinois and California.

All of this is well known. Not so well known is the ownership of Camelot. They are owned by (we are not making this up) the Ontario Teachers’ Pension fund, the largest plan of its kind in Canada with assets of 117 billion. Perhaps even more interesting, the Ontario Pension fund has numerous similar investments, owning similar corporate entities around the world.

So, while here in Pennsylvania, we are worrying about the unfunded liabilities of our own "teachers’ pension plan" (as well as our own state employees plan), Canadian entities are making a healthy buck selling services to our own state lottery.
Not a bad gig. Pennsylvania sends lottery profits to a British company, one owned by a Canadian pension fund, while we lose some unknown number of Pennsylvania jobs in the process.  Meanwhile, legal issues may keep the whole thing in legal limbo for months if not years.

The winner in this one isn’t hard to locate. Hint: it’s not us. That great “socialist colossus” to our north is knocking our socks off when it comes to playing the Capitalist game.

 But it doesn’t need to end this way - and it won’t if we begin to apply entrepreneurial principles to our policy challenges.

With respect to the Pennsylvania lottery and our aspirations to increase its revenue, a simple expedient might enable our two embattled pension funds (SERS and PSERS) to play the same role as the Ontario pension fund.

Jointly or together, they might spin off a new company, whose board would consist of representatives of the two pension funds and the union. The profits would go to the two pension funds to help retire the 41billion in pension debt. The expanded revenues would increase monies for senior citizens programs. And Pennsylvania could save the jobs slated to be lost as well as including the employees to be part of the decision-making process itself.

It sounds simple. But carrying it off would require some negotiation, more than a little give and take on both sides of the issue, some good will and more than a modicum of commonsensical old time Yankee ingenuity.

But what promise and what potential if this kind of thinking took hold in state government--literally getting all stakeholders invested in a major governmental reform, thinking pragmatically to a win-win solution that benefits citizens, taxpayers and government workers alike.

That’s not what we have done so far. But there is still time, not just for the Lottery but for the phalanx of problems Pennsylvania must solve in coming years.

We are not going to bring Pennsylvania into the 21st century using the tools and techniques of the 20th. The problems confronting us are massive, multiple and sometimes overwhelming. But we can solve them if we move away from rigid ideological thinking on the one hand --and trite and tired cookie cutter approaches on the other. We must begin to think outside the box--and the lottery is a good place to begin.

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Politically Uncorrected™ is published twice monthly, and previous columns can be viewed at http://politics.fandm.edu. The opinions expressed in this article are solely those of the authors and do not necessarily reflect the opinions of any institution or organization with which they are affiliated. This article may be used in whole or part only with appropriate attribution. Copyright © 2013 Terry Madonna and Michael Young.

Jake Williamson January 25, 2013 at 08:36 PM
Governor Corbett is standing up for seniors while Treasurer McCord Stands Up for Casinos and Sen. Costa and Rep. Dermody do AFSCME's bidding. Sen. Costa: $30,000 from 2004-2012 from AFSCME Council 13; Rep. Dermody: $23,000 from 2004-2012 from AFSCME Council 13. Shouldn't this be outlawed?
Brfritz January 26, 2013 at 02:35 AM
This is a very thoughtful article. I did some research and it turns out Ontario Teachers' Pension Plan has history of investing in Pennsylvania. They owned GNC and own power plants in Ebensburg and Colver, PA. http://www.northernstargen.com/colver.html If they can sell power, I am sure they can sell Lottery professionally
Brfritz January 26, 2013 at 01:01 PM
What do the following states have in common? NEW YORK MASSACHUSETTS CALIFORNIA GEORGIA OHIO MICHIGAN MARYLAND OREGON RHODE ISLAND WEST VIRGINIA MISSOURI WASHINGTON WASHINGTON, DC KANSAS They have keno. What's also interesting is that the Rendell administration supported keno back in the day...check out the Post Gazette article "Rendell Suggests Adding Keno to PA Lottery Menu"
Joseph Wilson February 02, 2013 at 10:11 PM
I don't live in Pennsylvania but about one year ago I submitted an idea to the Pennsylvania lottery for a Multi-Drawing Lottery that was self-perpetuating, with a guarantee of multiplie winners with each drawing that would create economic benefits like no other current lottery can which maximizes benefits to the state and the players. Unfortunately the proposal was rejected by the state of Pennsylvania. This would have allowed the lottery to stay in the state's hands without outside management or costs. If you want to read more, please visit MDL National Lottery Proposal on Facebook or its companion page Yackin Jackson (Brookings, OR) on Facebook or YouTube. I think you'll like what you see! Good Luck! J.R. Wilson
Joseph Wilson February 03, 2013 at 09:22 PM
Thank you for the opportunity to respond further. The fact is the family of Multi-Drawing lotteries was proposed to all the state lotteries. I believe that if only a few states ran these lotteries that it would help all of America. No other lotteries will do what mine can do; breaking the jackpots down and distributing the funds to many winners on a weekly basis. By doing this you create an economic force that I call Geyser Economics (see our Facebook pages for chart). After corresponding with several states the door was slammed shut. I have reason to believe it may have been because of the tech companies that take approximately 35% of the state lottery pie. I believe that this contributes to the state shortfalls. Now Camelot a foreign lottery company is attempting to gain control of more state lotteries which could siphon billions of American dollars into Europe and possibly jobs. This is not a viable solution to the problem the states are having. I continue to work at getting my proposal considered. Letters and a continuing series of videos are being utilized to make the Multi-Drawing Online National Lottery, aka “The People’s Lottery©” a reality. People need to understand that it will change America for the better, create the fuel needed to boost our economy and, in time, pay down the national debt without more borrowing or additional taxes.

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