By Stephen Herzenberg, Third and State
One is the loneliest number that you'll ever do …
Although I’m dating myself, some of you may recognize the Harry Nilsson song made famous by Three Dog Night. We recommend that Governor Tom Corbett download it to his iPod as he contemplates whether to accept a solitary bid from Camelot Global Services to take over the operation of the Pennsylvania Lottery. Whether privatizing state services or getting a new roof for your house, having a single lonely bidder is a red flag for a fleecing — for overpaying the contractor.
In its bid, Camelot promises 20 to 30 years of lottery profits that barely increase at the rate of inflation — even with the addition of new lottery games such as Keno and online gaming. The deal could produce big-time profits for Camelot with performance no better than the public system could produce. If the company maxes out its incentive-based compensation over the initial 20-year contract, it could receive $1.15 billion in today’s dollars; more when you count annual management fees.
A good deal for Camelot, but not for the Pennsylvania seniors who benefit from lottery proceeds, as the Keystone Research Center finds in a new report. The impact on seniors is critical since the lottery generates $1 billion a year for services that benefit area senior centers, low-cost prescription drugs, transportation for seniors, and property tax and rent rebates.
Experience from other states offers little to recommend this deal. Illinois is the only state to privatize its lottery, and it is now embroiled in litigation about how much the contractor owes the state because of poor performance. Indiana just privatized its lottery, so there’s no information yet on the results. Both states received more than one bid from private companies.
Pennsylvania’s move toward privatization is especially puzzling given the lottery’s good track record and record profits in the last two years. A recent Pennsylvania Treasury analysis found that administrative costs in the Pennsylvania Lottery were the second lowest, as a share of lottery system sales, of the 10 largest lotteries in the United States.
The Keystone report also raises questions about financial ties between Camelot and Greenhill & Co., the private consultant retained by the Corbett administration to manage the bidding process. Greenhill worked on the $576 million sale of Camelot to its current owner, and would receive millions if the privatization deal goes through.
When you add up all the questions about this deal — starting but not ending with the lack of multiple bidders, the lack of transparency, the low revenue commitments, and an apparent conflict of interest that could motivate Greenhill to push for privatization — it seems like a game of tee-ball for seven-year olds: as in, "eight strikes and you’re out."
Based on all the questions raised by Keystone and others, at the very minimum the Corbett administration should slow down and undertake in partnership with the Legislature a transparent and comprehensive review of lottery privatization before locking the commonwealth into a bad deal for a generation.