Pa. unveils $34B, 20-year bid to privatize lottery

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HARRISBURG, Pa. (AP) — The Britain-based company that runs the national lottery in the United Kingdom is pledging to produce more than $34 billion in profits over 20 years if it wins a contract to manage the Pennsylvania Lottery, Gov. Tom Corbett's administration said Tuesday as it moves toward privatizing the state's $3.5 billion system.

The administration said it will weigh the offer by Camelot Global Services, which it said is good until Dec. 31, and is the only one it said it will receive after two other companies that it would not identify dropped out.

The revelation of the bid was the first time that Corbett has disclosed the identity of an interested party since it announced in April that it would explore privatizing the lottery in an effort to raise more revenue for the programs for the elderly that are supported by the Pennsylvania Lottery. Other states, such as Indiana and New Jersey, have shown no need to keep such secrets while exploring private lottery management contracts.

Camelot's bid would represent an annual lottery profit increase of about 3 to 4 percent a year, roughly the same annual percentage gain in profits that the lottery has realized over the past decade. By 2033, Camelot's efforts would have to produce as much as $2 billion in profits after paying prizes and expenses, roughly double what the Pennsylvania Lottery produced at the end of the last fiscal year.

The Corbett administration says expanding lottery gambling to keno and online games will be crucial to producing more revenue, and are steps it could take with or without a private manager in place. Even with a private manager running the lottery, the Corbett administration would retain the power to decide whether to expand the state's portfolio of lottery gambling, Department of Revenue spokeswoman Elizabeth Brassell said Tuesday.

About 230 employees work for the Pennsylvania Lottery currently. Should Camelot win the contract, the state would keep about 70 employees on board and the rest would be able to interview with Camelot, Brassell said.

Lottery sales increased last fiscal year by 8.5 percent and opponents of privatization, including Democratic lawmakers and the labor union that represents lottery employees, question why Corbett would want to pay a private company when sales are already increasing steadily.

"There is no good reason to dismantle the lottery," said Dave Fillman, the executive director of AFSCME Council 13, which represents the employees. "The administration has sold out our seniors and our members without one public hearing, without any legislative oversight and without anyone knowing how they crafted the terms and cut this deal. ... The bottom line here is that every single dollar that this firm is paid comes at the expense of our seniors."

Brassell said the management company's incentive pay would be capped at 5 percent of profits. Compensation would include its invoiced costs of managing the lottery, including payments to contractors, personnel expenses and administrative expenses, while less than 1 percent of profits would be allowed to cover the management company's indirect, non-invoiced expenses.

In addition to online gambling and allowing keno terminals in bars or restaurants, other options to expand gambling could include online ticket sales or an aggressive new search to add more lottery retailers.

Currently, the 40-year-old Pennsylvania Lottery is run by the Department of Revenue, and profits benefit programs for the elderly, including transit, rent and property tax rebates, prescription drug assistance, senior centers and long-term care services.

State law requires the lottery to produce 27 percent of its sales in profit for the state, but that floor rises to 30 percent in 2015. The Corbett administration will ask the Legislature to keep the required profit level at 27 percent through the life of the contract, Brassell said.

Camelot's profit projections, however, show that maintaining a 27 percent profit floor would result in a higher dollar value for the state, a quirk Brassell attributed to the ability to sell more of the popular, higher-payout scratch tickets.

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