British firm says it can increase revenues from Pa. lottery

Posted: January 05, 2013

HARRISBURG - The British firm that has bid $34 billion to run the Pennsylvania Lottery says it can do for the commonwealth what it did in Britain: boost revenue for social services and other programs.

A Camelot Global Services executive, speaking publicly for the first time about the bid, said Thursday the company was confident that it would be able to eclipse the lottery's current revenue and provide more to help the state's growing elderly population.

"It's a great deal for the seniors of Pennsylvania as beneficiaries," Alex Kovach, Camelot's managing director, said in a telephone interview. He is in the state for meetings with the Corbett administration.

Camelot, which runs Britain's national lottery, was the sole bidder under an initiative by Gov. Corbett to privatize management of the lottery. The lottery now generates about $3.5 billion annually, $1 billion of which the state spends on senior services such as prescription drug coverage, transportation, and long-term care.

The company's offer, some details of which have not been made public, was to expire Dec. 31. Corbett and Camelot agreed to extend negotiations until Thursday to give the union that represents most of the lottery's 230 employees time to propose an alternative plan to increase lottery revenue.

A second extension, to allow the state Senate Finance Committee to hold a hearing Jan. 14 on the privatization plan, is anticipated, but a Department of Revenue spokeswoman said the extension had not been finalized.

Camelot, which stands to earn hundreds of millions of dollars in management fees along with potential incentives for exceeding its profit guarantees, says it will generate at least $34 billion in profits for the state over a 20-year contract.

The Camelot bid estimates that over the first 10 years, the contract will bring in $500 million to $1 billion more than generated under current lottery management, Revenue Secretary Daniel Meuser has said. The bid also includes the introduction of keno and online gaming.

Kovach said the revenue is not "hinged" on those new games, but rather on a change in philosophy that would broaden participation - an approach that has paid off in the United Kingdom and California, where Camelot serves as a consultant to that state's growing lottery.

"We've adopted a strategy that considers the lottery like a can of Coke - a consumer good - and you apply consumer-good marketing to the lottery to get a wide group to play responsibly," he said.

"In the U.K., we get 50 percent of the population to play a small amount every week. That way, we can grow the lottery in a responsible way."

Camelot says it is putting forward $200 million that the state could dip into if the company does not meet those projections.

"We are putting our money where our mouth is," Kovach said. "The beauty of the deal is, it only works for us if it is working for seniors."

He said that if his firm won the contract, it hoped to retain as many lottery employees as possible and even increase the workforce, but none of the current employees would be guaranteed a job.

The company made Kovach available for interviews after the move to privatize the lottery encountered opposition from various quarters.

Democratic lawmakers have questioned the lack of information being provided, the absence of legislative oversight, and revenue projections that fall off to just 1 percent in later years.

"Pennsylvania has the most successful lottery in nation. No wonder it's an attractive corporate takeover target," said Bill Patton, spokesman for House Democrats. He contended that privatizing is "not in the best interest of older residents, who benefit from it tremendously."

Some antigambling Republicans, too, are against the gaming expansion that would come with introducing keno and online gambling under Camelot's proposal.

The plan also has been criticized by Auditor General Jack Wagner and Treasurer Rob McCord, both Democrats. McCord has said he might not pay Camelot unless its plans to expand gambling are determined to be legal.

The lottery employees' union, AFSCME Council 13, filed a suit last month challenging the governor's authority to award the contract and expand the scope of lottery gambling without legislative approval.

Contact Amy Worden at 717-783-2584 or or follow @inkyamy on Twitter.

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