PhillyDeals: Betting on lottery players anteing up for a bigger pot

Pennsylvania's cut of lottery proceeds is $1 billion a year.
Pennsylvania's cut of lottery proceeds is $1 billion a year. (ALEX REMNICK / File Photo)
Posted: January 21, 2013

If this works, a lot of people are going to get paid - by the public.

Pennsylvania Gov. Tom Corbett hired ex-Gov. Ed Rendell's investment bank to find a Canadian-owned British company to run the Pennsylvania lottery.

The Republican governor's Jan. 11 proposal - pending approval by Democratic Attorney General Kathleen Kane - is supposed to boost the money the lottery raises for senior citizen tax breaks and other programs, while adding, not cutting, lottery jobs, and turning a profit for the lottery operator, Camelot Global Services.

That can happen only if Camelot persuades Pennsylvanians to bet more. "We're looking to increase participation," affirms Alex Kovach, the marketing man running Camelot's Pennsylvania push (he previously worked for Ladbrokes, the British sports-betting chain).

Camelot was formed in 1993 to set up a lottery for Prime Minister John Major's government to fund "good causes." Twenty years later, "nearly 50 percent of the U.K. adult population plays our games every week," Kovach says.

Can Camelot boost sales in Pennsylvania, too? That may be tougher than it sounds. Pennsylvania's annual lottery bet is already more than one-third of Britain's $10 billion, though Pennsylvania's population is less than one-fourth as large as the U.K..

Camelot has promised to add lottery retailers, to extend video lottery games into bars and restaurants, and eventually to roll out online ticket sales, jointly boosting the state's annual cut of lottery proceeds from $1 billion to more than $1.5 billion.

Won't this divert gamblers from Pennsylvania's casinos, which already send more money to the government than in any other state?

Not necessarily, says Kovach. Heavy bettors go for casinos and sports books. Lotteries, by contrast, should attract "lots of people playing a little."

Complex bid

Camelot was the only company that made it all the way through the Corbett administration's bidding process, run by Greenhill & Co. That's the same investment bank that Rendell proposed using to lease the Pennsylvania Turnpike, and which has since hired him as senior adviser.

Camelot rival GtechCorp., a Rhode Island-based company controlled by Italian billionaire Marco Drago, dropped out of the Pennsylvania bidding in November, citing repeated changes to bidding rules, the $200 million reserve demanded to cover possible profit shortfalls, "inconsistent accounting methods" that it said the state uses in reporting lottery yields, and the state's demand that the winning bidder pay as much as $30 million in "transaction expenses." Tatts Group, which runs Australian lotteries, also passed.

Gtech won a contract last fall to run the Indiana lottery. It also runs the Illinois lottery, which last year fell $99 million short of projections in its payments to the state, the Chicago Tribune reported. Under the Pennsylvania proposal, GTech could have had to pay the state that $99 million from its reserve.

The $200 million reserve pledge is a lot for Camelot. The firm is owned by Canada's $110 billion Ontario Teachers' Pension Plan, which paid about $600 million for the company in 2010.

Tax or bet?

About 27 cents of every dollar bet on the Pennsylvania lottery goes to the state. If that cash is the whole point, it would be a lot more efficient, for the public, to raise that money through taxes. It's the difference between buying Girl Scout cookies (they just get a cut) and giving the scouts cash (they keep it all).

But the lottery, like private management, is more attractive to the people we've elected in Harrisburg.

Unlike taxes, after all, gambling is voluntary - if you can resist the multinational marketing campaign that's reaching for your wallet.


Contact Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or on Twitter @PhillyJoeD.

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