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Lottery partnerships have poor track record

Sep 2, 2003, 3:58 am

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Tennessee LotteryTennessee Lottery: Lottery partnerships have poor track record
As Tennessee officials consider a lottery partnership with Georgia, lottery observers warn that similar joint ventures have had their problems.

Tensions simmer within a consortium of western Canadian provinces operating a lottery together. Three New England states are starting to go their separate ways. And South Carolina took only a few days before turning down Georgia's offer to join forces.

``Some liaisons are not what they're cracked up to be,'' Edward Stanek of Iowa, the country's longest-serving lottery director, told The Tennessean newspaper.

By the end of the week, the Tennessee Education Lottery Corp. is expected to announce whether it will ally itself with Georgia, which is considered an industry leader.

A consultant hired by Tennessee's lottery board projected the Georgia deal would yield up to $248 million extra for college scholarships in Tennessee. But some fear the joint venture would be challenged in court by lottery vendors shut out of a chance to vie for part of the estimated $873 million in annual revenue the Tennessee lottery is expected to produce. A legal challenge could delay the start of the lottery and cost the state millions.

No partnership exists on the same level as that proposed between Tennessee and Georgia, but previous ventures have broken up or strangled under loss of autonomy, said Stanek, who is CEO of the Iowa Lottery, where he has been since 1985.

Four years ago, the Tri-State Lottery Vermont, Maine and New Hampshire began disbanding its consortium that had existed since 1985.

``We ended up reducing our cost by half by going out to bid on a single system because of changes in technology,'' said Rick Wisler, executive director of the New Hampshire Lottery. ``We never would have known that if we had not gone out to bid.''

Although the three states no longer share a central computer system, they still work together in other ways. New Hampshire takes care of the drawings; Vermont is in charge of accounting; and Maine is in charge of operational issues.

The Western Canada Lottery Corp. is another example of what can happen with lottery partnerships.

``What happens in a partnership, if one or more of the members don't feel they're getting a fair share, you have little troubles,'' said Pat Sheptycki, spokeswoman for the Alberta Gaming and Liquor Commission, which partners with the provinces of Saskatchewan and Manitoba in the WCLC. ``You could end up with fights.''

The consortium was created in 1974 by those provinces and British Columbia because population in each jurisdiction was not enough to sustain large jackpots on its own, she said.

In 1985, British Columbia, the largest in the group, left to start its own lottery.

``They had the highest sales of the four provinces, but the head office was in Manitoba,'' Sheptycki said. ``British Columbia felt the head office should be in British Columbia, so they could have more power, I suppose. That didn't happen. British Columbia decided to go on.''

The remaining three, including Alberta, which generates 62 percent of the sales, are not free from squabbles.

``Each province believes they are in charge,'' Sheptycki said. ``We (in Alberta) believe they are our client, and they believe we work for them. That's a tricky situation that has been a rub the entire length of the partnership.''

Tennessee lottery spokesman Will Pinkston said the lottery board is being ``deliberate and cautious'' about the proposed venture with Georgia.

``They are taking into account all the range of possibilities, the basic organizational structure that a relationship can have, and possibilities of resolving disputes that may arise moving forward,'' Pinkston said.

Management consultant Gerry Wexelbaum told the Tennessee board that an alliance would be favorable because Georgia could get the games started earlier and extend low-cost vendor contracts. The estimated savings to Tennessee ranged from $101 million to $248 million, after Georgia is paid its share.

Board members are being secretive about what the Georgia cut would be, although board Chairman Denny Bottorff has said it would be less than 25 percent of the additional revenue Tennessee earns from the partnership.

``It looks like a proposal that would be made in heaven for Georgia,'' Stanek said. ``It would give them the ability to make decisions for a border state where there is significant competition for sales and at the same time get paid for it.''

The Georgia lottery expects to lose $100 million in border sales when Tennessee starts its lottery.

Pinkston said Monday that the lottery board ``would never cede or hand over decision-making authority to another state. This would be a partership under which Tennessee would maintain autonomy and independence.''

Two years ago, Georgia entered similar talks with another neighbor, South Carolina. The Palmetto State's law appeared to prohibit such an alliance, and officials there never seemed to warm to it, said Ernie Passailaigue, executive director of the South Carolina lotto.

``What we had to look at was, if we were involved with Georgia, where do their loyalties lie?'' he said.


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