Lottery shell-game

John Filan, the chief operating officer of the state of Illinois, said recently of lotteries, “This is fundamentally a retail business, and governments are not equipped to manage retail businesses. Gaming is getting so competitive around the world that we’re worried our revenues could go down unless there is retail expertise.” After years of declining income, Illinois is now considering privatizing their state lottery, essentially selling-off the business to a private company who would take over operations for a massive one-time purchase.

Now a host of other states, including Michigan and Indiana, are increasingly open to the idea. A spokesperson for Michigan Governor Jennifer Granholm confirmed last week that selling the Michigan lottery might be a viable option for fixing a state budget that faces an $820 million deficit.

Criticism of privatizing lotteries has come from a number of sources, including economists and other citizens concerned that states would be forfeiting a long-term source of income for an upfront payoff. But few have pointed out that the sale of a lottery to a private firm would do little to address the fundamental problem now faced by the state-run ventures.

“This is a very risky business because of all the new competition over the last seven or eight years. And we’d just as soon pass that risk on to those that are in the risk-taking business,” says John Filan. The truth of Filan’s observation is that governments are particularly unsuited to manage industries that are characterized by risk, competition, and profit motivation. Lottery executives are right to think that these kinds of endeavors are best undertaken by private enterprise.

But a move that would sell off a lottery system to a single private firm does nothing to make the lottery business more competitive. No company would be willing to shell out billions to run a lottery that wouldn’t have the same major benefit of the current system: the protection of a government-enforced monopoly. The only difference between the proposed privatization and the situation now would be the entity responsible for day-to-day operations. A governme