Scandal in the DC Lottery

June 3, 2008

State-run lotteries present a number of tax policy problems: they lack transparency, they impose a tax paid disproportionately by the poor, they unnecessarily complicate the tax system, and the profits are often not used as promised. As if that were not bad enough, there is also potential for corruption. Many people mistakenly believe that government-run lotteries are free of corruption while privately run lotteries would be rife with scandal and crime.

While state-run lotteries have, for the most part, been run above board (as far as we know), there are some notable exceptions. In Pennsylvania, for example, corrupt lottery officials injected some of the balls used in a televised lottery drawing with fluid so that the heavier ones would fall to the bottom and certain numbers would not be chosen. Many types of crime have resulted from state-run lotteries, some of them perpetrated by government officials and some by private citizens.

The Washington, D.C. lottery has experienced some problems lately, including theft last year and a potential scandal this year. The details have not been sorted out yet and it’s not clear that any crime was committed, but this is just one more example of why government should not be in the gambling business—or in any business that can be handled adequately by the private market. From Lottery Post:

Jerry Cooper, the man who helped bring legalized gambling and the lottery to the District nearly 30 years ago, called local businessman Warren C. Williams Sr. with a suggestion last year.

The District’s contract with Lottery Technology Enterprises, the firm that has run the city’s online gaming for about 25 years, was going to expire by 2009. Would Williams be interested in bidding against LTE for the lucrative contract?

No, but maybe his son and daughter-in-law would.

So Alaka Williams, the daughter-in-law, decided to take on LTE. And therein are the roots of what has been a nasty and aggressive battle over a city contract, a contest complete with accusations of bias and incompetence.

. . .

The spoils: a contract, if extended over 10 years, worth more than $120 million. The lottery has more than $250 million in annual sales, city officials say, and generates $68 million to $72 million a year in revenue for the District. W2I won the bid—or so it thought.

The coup has stirred up controversy, pitting Alaka Williams’s company and her friends against LTE and its friends. There are fathers and their children, husbands and wives, fraternity brothers and former co-workers, and plain old good buddies mixed up in what has become an operatic scene of charges and countercharges. LTE has filed a complaint with the Contract Appeals Board, which is to review the grievance tomorrow.

The lottery, it turns out, is a messy, incestuous business.

Some people insist that government must run lotteries to ensure that consumers are not cheated, but even if we assume private companies would cheat customers left and right (which would probably put them out of business), there are few industries where the phrase “buyer beware” is more appropriate than the gambling industry.


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