If Illinois privatizes its lottery system, investors and public officials in other states will closely watch the groundbreaking move with an eye toward repeating it, a gaming industry leader predicted Wednesday.
Gov. Rod Blagojevich, a Democrat running for a second term in November, announced Tuesday a proposal to sell off or lease the state's lottery system to private investors in order to bolster school funding. He said the state could get $10 billion out of the deal and use the money to fund major new education programs, more per-pupil spending, and a $1.5 billion construction program.
The lottery makes about $600 million annually after payouts and administrative costs. The idea would be to turn that revenue stream over to private investors, in exchange for the one-time, $10 billion payment. Whether that privatization would be a sale or a long-term lease still hasn't been determined.
Bob Vincent, a spokesman for Illinois' main lottery contractor, Rhode Island-based GTech Corp., said some European countries, including Great Britain and Greece, have privatized parts of their national lotteries. But it has never been done in the United States on the scale Blagojevich is proposing.
In theory, GTech would be among likely candidates for such an investment. But Vincent said the company would need more details about the proposal before it would declare itself interested. "Obviously they would be saying, 'We'd like you to make a large investment,' and you need to know the details of how you're going to operate," Vincent said.
Vincent said that if Illinois' sale is successful, it could start a trend among other state governments that need to liquidate assets for quick cash.
"State lotteries have always been a bit of an orphan: They operate almost like a for-profit corporation," he said. "...A state may look at things and say, 'Why don't we just offer a concession to the private sector?' That notion I can see appealing politically to folks."
Gary Gonder, a spokesman for the Missouri Lottery, said the growth of lottery sales in Missouri left him skeptical that such a proposal would benefit the state. This year, lottery sales in the state are expected to top $900 million, up from $422 million in 1996.
"I'm not sure that selling something today that might be worth twice as much in 10 years is such a good investment," he said. "The state might be leaving a lot on the table."
Republicans say Blagojevich's plan could end up leaving Illinois with less education funding than it has now. Under the plan, $4 billion of the one-time $10 billion payment would be used for a four-year plan to increase education funding. The remaining $6 billion would fund an annuity to replace the lost lottery revenue stream with a $650 million annual payment until fiscal 2025.
After that point, the $10 billion would be gone, and the lottery presumably still would be in private hands. But administration officials said Wednesday that trade-off, almost 20 years from now, would be worth it if the state could rebuild its schools and bolster programs today.
"No government is going to have a plan 20 years out," said Becky Carroll, spokeswoman for Blagojevich's budget office. "Future General Assemblies and governors will continue to deal with the education issue, as we do."
The plan will have to be debated in the Legislature before it could go into effect, and that can't happen until the General Assembly reconvenes in the fall — after the Nov. 7 elections.