Pennsylvania’s sweetheart lottery privatization deal

December 7, 2012

There is a lot of darkness and a web of connections around the efforts to privatize the Pennsylvania state lottery. Tom Corbett, the governor of Pennsylvania, is attempting to force through the privatization before the legislature comes back into session in January and has a chance to review the terms of the 20-30 year deal. Democrats are howling.

The Patriot News tells one side of the story:

Calling the administration’s pursuit of this potential deal “too secretive,” House Democratic Leader Frank Dermody, D-Allegheny, urged Corbett to be more transparent about his plan for privatizing the lottery that he said would cost older Pennsylvanians hundreds of millions of dollars in lost funding for services over the life of the 20-year contract.

“Now, when there is no General Assembly in session, he is trying to hand-deliver a lucrative contract to the lone bidder with no hearings, no legislative approval and no public scrutiny. This whole thing stinks,” Dermody said.

Businessweek had another angle on the Democratic dissent:

In a Friday letter, Senate Minority Leader Jay Costa, D-Allegheny, asked Corbett for a slew of documents, including the proposed management agreement between the state and Britain-based Camelot Global Services, an unredacted copy of Camelot’s bid and a full explanation of the scope of expanded lottery gambling being considered.

What concerns does the Senate Minority Leader Costa have?

“A decision as important as handing over an extremely well-run, efficient, and successful lottery to a foreign company should not be made behind closed doors, by a limited amount of people and without public input,” Costa wrote.

The change in the lottery’s management does not require the approval of the Legislature.

The Patriot News reports that the governor has released few details about the deal:

Administration officials have said they have been open about their plans to explore lottery privatization since last spring as a way to increase lottery profits and add some predictability to them. However, administration officials have insisted on keeping key details about the potential bidders private. They maintain it’s necessary to protect the integrity of the bidding process.

Although there appeared to have been several bidders involved in the process, the sole remaining bidder is Camelot Global Services PA. Camelot is owned by the Ontario Teachers’ Pension Plan, a Canadian pension fund.  Camelot has deep ties to the firm, Greenhill and Company who was hired by Corbett to advise the state. Greenhill worked on the $576 million sale of Camelot to its present owner, the Ontario Teachers’ Pension Plan, in 2010.

Greenhill also has very deep ties to Pennsylvania, since it hired the former governor, Ed Rendell. Daily Kos picks up that thread:

Ed Rendell’s relationship with Greenhill and Co. – a Chicago based private equity bank – dates back to 2008 when Rendell hired Morgan Stanley to broker a $12.8 billion deal to privatize the Pennsylvania Turnpike.  The effort ultimately failed to pass the Pennsylvania Assembly.  The banker that Morgan Stanley assigned to the job was Robert Collins,  a current banker for Greenhill and Co., and thus Governor Rendell’s future job as a “government consultant” for the firm was set in stone.

So a former governor, whose own privatization efforts were rebuffed by the legislature, works for Greenhill, the private equity bank that is advising on a massive, unvetted contract. And it’s likely that the privatization contract is going to Camelot, a firm that Greenhill sold two years ago. Is there any oversight on this circular deal, or is it just a bunch of good old boys flying blind to sell off some public assets?

Is the Pennsylvania lottery poorly run now? Is that the reason for the privatization push? Actually the publicly run operation is going gangbusters. Businessweek reports that the lottery’s profits were up an amazing 10 percent last year as public employees ran it:

Camelot is pledging to produce more than $34 billion in profits over 20 years if it wins the contract, according to figures released by the Department of Revenue. That amounts to an annual lottery profit increase of about 3 to 4 percent a year, in line with the lottery’s performance over the past decade. Last year, lottery profits rose by more than 10 percent and are on track to exceed that number in this fiscal year, as well.

Judging by the rough numbers, Camelot brings nothing to the table on a profit basis. There is talk that it could add additional wagering services, but the state run lottery could easily bring in consultants to advise them to do that themselves. There appears to be no reason to transfer public profits to a private entity.

As the House Democratic Leader Frank Dermody said, the way that this deal is being handled stinks. It’s time to halt this unvetted and dark process and let in a little sunshine.

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